Macke's Retail Roundup Articles

Below is my weekly video for members of Macke's Retail Roundup. 

We've entered the retail portion of earnings season. This week I analyzed the reports and reactions from DIS and PTON, two consumer stocks I watch closely for different reasons. 

As usual, I also gave 3 names that are on my radar for potential additions to the portfolio, including when I'd buy them. 

Peloton shares are down pre-market despite the company doing just about anything analysts could have asked from it.

Churn hit 1.2% despite a massive drop in marketing spend. As mentioned in the preview yesterday, if Peloton can retain the lucrative connected fitness subscribers (a decent proxy for customer satisfaction) and maintain disciplined spending you suddenly have a nice little cash flowing company with almost no built-in growth expectations.

A year ago then CEO Barry McCarthy resigned with the turnaround admittedly unfinished. Barry was smart and well-meaning but he was still clinging to the idea of Peloton has a growth company. A reset was needed and that's what Peloton has gotten.

Debt is down huge over the last year, cash flow has been positive 5 quarters in a row and Peloton is finally hinting at getting out of the stores which have been driving me quietly insane for years.

The call is starting but I wanted to get a note out. Barring something very bad from the company on the call Peloton is being punished for a quarter which is, at worst, an A- (Yes, Peloton is graded much easier than, say, Amazon).

Macke portfolio holding Peloton reports in the morning. Officially the Street is looking for a loss of 6c on ~$650mm for the quarter and about $2.5b in revenue for the year, cranking out about $300 to $350 million EBITDA.

But that's not what I'll be watching. I'm grading the company on Churn, Cuts and Cashflow. I don't really care if Peloton is selling a lot of bikes. The head of marketing got fired last week so I suspect they aren't. Bikes and Treads and rowing machines crank out 1/3 of Peloton's revenues but it's only a 13.5% gross margin business. With Tariffs that margins falls to nothing-ish. Peloton runs inventory lean and has China exposure so there could be headlines related to moving product around ahead of the tariffs. Under old management that would be scary. The new team seems quite competent. Both me and the Street will forgive a little inventory kerfuffle.

If Peloton can't get more apparel and decides to close its pointless stores I'll be almost giddy.

So the tariff doesn't scare me.

Investors need to see churn (the number of people who quit) stay low (under 2%). This is a hard time of the year for churn but that's the key to Peloton as an...

Uber is is pulling back premarket, ostensibly on slightly light revenues and solid but not spectacular guide. At least that's going to be the reason analysts will cite for not taking up their ratings on Uber, despite the company crushing on trailing numbers and guiding to just a whisper better than estimates for the current quarter. 

The truth is both more nuanced and quite simple.

1. ) UBER shares are up 42% since April 6th. As discussed on Monday, Uber needed gargantuan numbers across the board. In this economy? Was never going to happen. The stock needed a little rest. We'll see how fast buyers come in:

Yesterday's Pre-Chart:

2.) This wasn't a quarter that was going to change anyone's mind. Uber didn't post terrible news as the stock fell from $80 to $60 earlier this year. It just got dragged down the rest of the flotsam, with a bunch of misunderstood news about autonomous vehicles thrown in on top of it.

Now that Uber has reported huge earnings and cash flow analysts with a bearish take will go back to mumbling about unsustainability and the ever-looming threat of Tesla releasing a fleet of cabs.

At least that's what I suspect...

Disney just beat the crap out of estimates and (surprising part here) guided higher for the year. 

Despite collapsing consumer sentiment, a drop off in US park visits, leaning even deeper into cruises (which might be the only way to vaporize your money faster than going to a theme park) and national disinterest in all things Marvel and Star Wars Disney guided pretty much every higher for just about every segment and hiked the annual estimate by over 30c a share.

Just to flex a little more Disney also raised expected cash flow by more than $2 billion. 

Oh yeah, Disney also added the news of a new park in Abu Dhabi. Which raises a whole bunch of questions

Let's Grade It!

Financials: A

This is why you have a conglomerate. Parks fall off? Entertainment picks up the slack. Cruises are disappointing? Streaming picks up some slack. This is probably the best quarter for Disney since the return of Iger, given the cross-currents.

Consumer: B+

Park profitability went up despite less traffic. I'd like to think that was because the company was controlling traffic levels by raising prices, a...

In late April Dad-Shoe brand Skechers reported decent earnings and pulled all guidance.

We talked about it at the time in my video update. To refresh, Skechers had cash, patience and a good management team with a strong track record. They also source 40% of their product from China. As a results SKX management rather candidly said "we don't know" and yanked guidance for the rest of the year.

At the time my question was whether or not the stock could hold its lows:

The stock held, which was bullish but it would seem Skechers thought the certainty of cash in hand from 3G was better than rolling the dice of adjusting the supply chain on the fly. Today Skechers announced an agreement to be bought for $63/ share. A 30% premium over the price on Friday but below where SKX was trading in February.

It's important that A) Skechers was worried enough to take the cash and B) Private Equity was there to offer a bid. Skechers was looking at reporting for the next 9 months having no idea what the numbers would be. After a quarter century of...

Earnings season is heating up as we get into May. We've heard from plenty of consumer facing names so far (Hasbro, McDonald's, Chipotle) but by time honored tradition the earnings season for retail doesn't start until Walmart reports which won't happen until next Thursday.

It makes sense if you think about it. Walmart is the biggest retailer on earth. They set the standard and the context for all the other retailers. If Walmart reports positive comps and says it sees no problem with scarcity next week that raises the bar for Target. Home Depot reports before Lowe's for the same reason. There's no official law forcing the order. It's just what makes sense.

Once the big box stores are done reporting the floodgates open. Foot Locker, Best Buy, Kohl's, Gap, Ulta will all be on the record by the end of the month. While the economists argue over the long term implications of trade policy the retailers will be telling us what's actually happening in the real world.

I find it much more lucrative to focus on what Walmart is saying consumers are doing than what economists think should be happening.

I'm grading the names that matter and giving select earnings...

Below is my weekly video for members of Macke's Retail Roundup. 

We made our first new purchase since launching the consumer portfolio earlier this year...

This is a stock I've been keeping an eye on for a while, and I'm of the opinion that it's probably more recession proof than most people think. 

Today's new all-time highs certainly don't hurt! 

I added a new name to the Retail Round-Up portfolio last week. Spotify entered the portfolio after reporting a "disappointing" first quarter that, honestly, couldn't have made me happier. 

As discussed in the Spotify preview and earnings Report Card, I didn't care much about what Spotify reported for EPS or financial guidance. I cared about subscriber count. Specifically, premium subscribers. I don't know anything more than anyone else about how these Interesting Times work out in terms of the economy over the next 6 months but I know a certain level of Chaos as been created. Whatever happens from here, everything since April 2nd has worked to the relative benefit of the most powerful, liquid, flexible consumer names. 

That means Walmart, Costco and Amazon (we only own the last name in the portfolio) will take share from lesser players. It means companies like Gap and Victoria's Secret, with diversifiend supply...

As the Everything Company, it's appropriate Amazon's earnings will have something for everyone. 

Want some insight into impact of trade tension on consumer spending? Amazon's got you. Shipping? Amazon can tell you more than UPS did. Tariffs, IT spending, the impact of Chinese trade on drone delivery? Check, check, check. Amazon promised to invest heavily wherever it saw an opportunity when the company went public nearly 30yrs ago and the company has absolutely lived up to its word.

Amazon has gone from a bookseller to a stealthy Club Store (Amazon Prime has over 200 million members and generates $40 billion a year) to a movie streaming service. The company is taking over the production of Thursday Night Football, making it a nascent television network and movie studio. Presumably, to aid in the streaming of all this content this week Amazon launched the first of what will be 3200 satellites for high-speed internet. Naturally, Amazon used founder Jeff Bezos' Blue Origin rocket company for deployment. 

And people thought he just started that company for celebrity near-space tourism.

Amazon gives good conference call (long answers, insanely smart...

It wasn't the numbers that cooked shares of Starbucks after hours last night. Not that Starbucks didn't turn in a "disappointing" (their words) quarter last night. They did. But the stock was hanging in there just fine well into last night's call. China comps were flat(!), The US was weak but not a disaster and the rest of the world comped positively. Margins were a trainwreck. EPS wasn't even close to estimates, but Starbucks pulled guidance over 6mo ago. No one owned Starbucks for last night's EPS.

What killed $SBUX (or at least sent shares from flat to down ~8%) was Starbucks shifting spending plans from machinery to labor. Under prior management, Starbucks was somewhat obsessed with rolling out Machines and Food, committing to spending $450 million on machinery starting in 2022. Say goodbye to the cold brew systems and elaborate food prep systems. Only heavy-traffic drive-thru-based stores were getting the elaborate coffee-making systems.

Niccol, who seemed confident if a little disdainful of prior initiatives he's now having to unwind, is young(er) blood but old school. He's spending on employees. Not throwing money at them but absolutely spending more on labor...

Starbucks set to report tonight and if you aren't nervous you haven't been paying attention. 

Shares of the worlds largest coffee shop are trading at levels first hit in 2019, a depressing run of mediocrity that has included 4 CEOs, a national controversy over the use of store bathrooms and the COVID lockdown. The lockdowns were particularly notable for Starbucks because ~20% of its revenues (and much less of its earnings) are generated in the Chinese market, which was something of a career-long hobbyhorse of longtime leader Howard Schultz. 

The company pulled all guidance last fall, one of the first orders of business under CEO Brian Niccol. Suffice it to say the business outlook hasn't gotten more transparent since October.

Same store sales were likely down in the US last quarter, though likely with improved tickets but weaker traffic. FWIW analysts are looking for EPS of 50c on about $8.8b of revenue. There will be currency noise and, as just mentioned, Starbucks itself isn't giving any guidance and has no particular incentive to stretch numbers or paint a rosy international picture. Niccol arrived with a well-earned reputation and he's...