Is retail making a comeback?
The retail industry has just had its best week in a year, and the company is solid.
In today’s MarketFoolery, Chris Hill and the Motley Fool Stock Advisor, Supernova Jim Mueller and Phoenix 1 talk about what’s behind the retail business. The hosts can also benefit from the earnings of companies such as Lowe (nyse: LOW), Home Depot (nyse: HD), Urban Outfitters (nasdaq stock code: URBN). To mark Thanksgiving, Jim talked about a stock investment he made, which soared from $19 a share to more than $1,400 in a decade.
Video has a complete record.
What just happened.
I don’t know about you, but when one of the best growth investors in the world gives me a stock tip, I always pay attention. The Motley Fool co-founder David Gardner and his brother, the Motley Fool CEO Tom Gardner, have just revealed two new stock tips. Their stock market returns have tripled in the past 13 years. * although the timing is not all, the history of Tom and David’s stock options suggests that it was worth it to get their ideas early.
Click here for the first batch of people to hear the latest advice from David and Tom.
* the stock advisor will return before January 2, 2018.
The video was recorded on November 21, 2017.
Chris Hill: Tuesday, November 21st. Welcome to the marketplace! I’m Chris hill. From the stock advisor to my studio, honestly like 17 other different services, Jim mueller is at home. Thank you for being here!
Jim Mueller: hey Chris! Thank you for your hospitality!
Hill: I honestly lost the service you worked for.
Mill: three, technically.
Hill: just three? I only said three. Of course, I don’t have any work. But I think your job -.
Muller: the stock advisor is my family service. I’ve been there the longest. Then, since its inception, I have been in phoenix and supernova team, but a few years ago, when Rick muna rees (Rick Munarriz) as the leading phoenix ii, he became the leader. Then, I joined the option three years ago, at that time.
Hill: like most people in the options service, you’ve written down your contract and you don’t have to be in the same room with Jim gillis for a certain amount of time.
Mill :(laughing) I like Jim!
Hill: we love Jim! Are you kidding me? We love Jim gillis! Well, even if this week is short for us, because Thanksgiving is this week, Earningspalooza is rolling in, and today we’re going to talk about retail. We’re also going to preview the Motley Fool Money Thanksgiving special this weekend. Let’s start with Lowe. Third-quarter profits more than doubled. Lowe’s same-store sales rose nearly 6%. Share prices fell slightly. Is that because of guidance?
Mueller: yes, very. They have a pretty good quarter. They beat expectations with earnings of $0.03 a share, and sales rose 6.5 per cent, more than expected. But management did not really accept and say: “we will say 2017 will be a bit better than you think.” Thank you, ilma, for Harvey, and their sales contributed about $200 million, up about 1%. But they said, “no, we’re going to be conservative.” So the market says, “okay, we’re going to keep your stock.”
Hill: you look at the Home Depot and Lowe’s situation, in the past three or four years, no matter the Home Depot in quarterly results do what, you can be fairly confident that Lowe will do almost as well. They will be better. They will do very well. And Lowe’s is one of them, and if you hold Lowe’s for a long time, you’re doing very well. If you have Home Depot, your work is not done yet.
Muller: yes, no. I mentioned the $200 million in sales that Lowe calls the hurricane. Home depot had sales of $282 million. This morning I found a quote from Brian Nagel of Oppenheimer. After his trip to Florida, he said he had visited the stores in Miami, where he said home depot appeared to be more aggressive in the sales of hurricanes. The result may be that he is right.
Hill: as a consumer, are you on another BBB 0? I just went to home depot with my geography. Alexander’s home depot was getting closer and closer to my home, more in line with my weekly travels than Rowe’s.
Mill: same here. My springfield home depot is on the way home from work. I often go to several other retail stores. So, yes, I don’t even know where the nearest Lowe is.
Hill: I think it’s under the Richmond freeway.
Muller: that’s my way.
Hill: we’re talking about baskets. One day, Jason Moser talked about the cash war and a basket of stocks he bought for the war. I want to know, in home outfit – if you look at our storm, see, the storm of people’s homes can be very destructive, in some cases, they may be fatal, but for it, if you are engaged in decoration industry, so to some extent, you will be because of a storm of some kind and hair root, slightly because it will eventually become one of the business opportunity.
Miller: Chris, you’re such a cynic.
Hill: I don’t want to be cynical, but I think it’s just…
Mueller: you have a fair point. Storms drive a lot. But for such companies, the bigger driver is new housing and general home sales. People want to upgrade their homes before they go into the market and bring a lot of business to home depot and lowe’s. In terms of the basket, you just mentioned that Lowe’s is behind HD. Both have done well, but Lowe has fallen behind Home Depot. But if you invest in this or that, it’s almost an investment. They’re all buying back shares, they’ve got a significant amount of debt, and they’ve had good growth over the last five years. Buy them two and sit on them. If you want more housing, you can start buying some housing builders, even railroads, because they have shipped a lot of lumber to the housing industry. So,
Hill: by the way, we have a period of time when we call it Bob nardelli in the case of home depot, when lowe was suppressing home depot. So, for home depot recently, it’s a good run, but who says it won’t do it again?
Hill: Urban Outfitters’ shares rose 11% this morning. Third-quarter profits and revenues were higher than expected. Just as Lowe’s same-store sales were higher than expected, Urban Outfitters’ same-store sales grew by 1%, but they are expected to lose money.
Mueller: I’m not cool enough here, I’m at Urban Outfitters shopping.
Hill: neither of us. I was out, my wife and I were meeting at Georgetown for dinner, and the kids on the table once said, “dinner’s over, we’re going to Urban Outfitters.” We finally caught up with them, and that was my idea. I just thought, “the only reason I’m here is because my kids are here.”
Muller: I don’t even think I’ve walked into a store. Back in their quarters, they did a good job. Revenue rose 3.5 percent to a record high of $893 million. They adjusted a little bit of the hurricane, because they did see some deceleration, because of that. But they think it is about two-thirds of what they lose per brand. If you quit, their overall corporate earnings are about 2%. But what really matters is the growth of 5 percent of free people, their wholesale direct to the consumer segment. It’s really strong. And Anthropol 2%
Mueller: I told you I wasn’t there shopping. [laughter] the brand grew by 2 percent, and even Urban Outfitters, a brand of the same name, grew by 1 percent. So all three departments are doing very well. This makes me wonder if retail is flagging. They are certainly not unique. On Friday Abercrombie&Fitch rose 24%, and their report was better than expected.
Hill and gap did the same in the last quarter of the year, and the stores of fashion/clothing/niche retailers generally went through a very difficult process. I want to know that even today Urban Outfitters’ rise has been down about 20 percent in the last 12 months. I wonder if all three have reached the point of overselling.
Muller: that’s absolutely possible. About a year ago, the retail industry was in a slump, and even as a result of last year’s results, there was a low hurdle. But now everyone will be watching the holiday season.
Hill: yes. That’s interesting, because I don’t support the company, but I’m sure there are investors, whether the Gap or Abercrombie&Fitch, Urban Outfitters, have looked at them and think: “oh my god, people think that they are closed, they are not, there’s a chance. “But maybe wait, because this is the season. This is a quarter of every retailer, and you want to see how they do it.
Hill: as I mentioned just now, this weekend at motley fool’s money, this is our Thanksgiving special, this is the year we actually use a sound effect. We blew the whole budget.
Muller: [chuckles] well, now I have to listen.
Hill: yes, now you listen. However, we do a thing to do is stick to Thanksgiving theme, sitting at the table, talking about our gratitude stock, but we start from a small pie, an we made a mistake. In view of this…
Mueller: will you ask me?
Hill: I’ll ask you. What is a humble pie, a stock you like, “hu, boy, I kind of miss that.”
Mueller: ok, I’m going to set it up a little bit. The company’s name is technically Acusphere. Now on the pink sheet it used to be on the NASDAQ stock.
Hill: [laughs] so that’s what we know so far. It’s on the nasdaq, now on the pink sheets. Go on, I think I know what’s going on here.
Mueller: you know that, I’m not sure that our listeners know that, but I have a PhD in molecular biology and biochemistry. I had to think about it there. I’ve been here for 10 years and I haven’t used it yet.
Hill: that’s ok.
Mueller: but when I first got it, I thought, “I’m very hot here, Mr. Scientist, so I can make a biotech choice. And that’s one of the things that you teach me, because you don’t have an advanced degree in a field that makes you an expert in this field, especially in terms of investment.
Hill: so, what did the company do?
Muller: they developed a product called Imagify. These are very small non-toxic bubble, which can be injected into the bloodstream, and used with echocardiography, in this case, the sound waves are fed into and back, in this case, the liquid gas barrier. So, a very strong signal. Doctors can find coronary artery occlusion of heart disease. They think it will replace the current technology, which involves some of the radiation that is tracked by the body, where radioactivity is not radioactive. So they submitted it to the FDA, which went public at the end of 2003, about $100 a share. It was a reverse split, so it was about $10 a share in the IPO. Unfortunately, the FDA said it was grateful, but it didn’t have to, and the stock price went down. I bought twice in 2006 and adjusted to $35, 2007 and $25. I’m selling for $0.07.
The first time you invest, you lose 98 percent. But I saved 71%, because it’s now $0.02. [laughs]
Mueller: yes, you can still reduce your money by 100%.
Hill: you know what? Some people are definitely buying your stock at $0.07 a share.
Mill: I know they did. [laughs] I can sell them.
Hill: now what about the stocks you’re grateful for?
Mueller: thanks? There are no stocks other than Netflix (nasdaq stock code: NFLX). I’ve owned the company for more than 10 years, and I’ve been tracking its stock advisers for at least so long, because before they do anything. I’ve seen them destroy their business from DVD mails, provide streaming and now DVD mails, they just make it slow. I mean, it still generates cash, so why clean it up, but I know they’ve closed the warehouse and things like that. Two or three months ago, when I put the CD on my desk for a year, I canceled my DVD mailing side. Like, you know what? I’m not really looking at this, so it’s time to let it go. But the streaming media is taking off. I know everyone is concerned about the cash they are spending, but profitability is emerging.