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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we discussed the outlook for retail stocks amid signs of increasingly stretched consumers. TD Cowen's John Kernan joined us. MoneyTalk's Anthony Okolie is going to discuss the outlook for real estate investment trusts as interest rates can lower and in today's WebBroker education segment, Meagan Henriques is going to take us through how limit orders work.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got the first trading day of the week here underway. The TSX Composite Index making a gain of 40 points, up a little more than 1/10 of a percent. Seeing the price of West Texas intermediate crude up about 3% on tensions in the Middle East, some news out of Libya, has some of our oil and gas names on the move.
Including Cenovus, let's check in on that name. At 2597, it's up shy of just one person. Denison Mines, want to check in on this uranium play. News out of Kazakhstan last week, there your production curves next year, sent a lot of the stock higher.
They continue to move higher off that news. At $2.35 per share, Denison is up almost 3%. South of the border, a little bit of weakness in the markets after the pretty strong rally of the last two weeks since that correction.
24 points to the downside, a little less than half a percent. You have Nvidia on deck later this week, perhaps a little nervousness among the tech stocks. Let's check in among the tech heavy NASDAQ, Seo is sharing amongst the broader market.
Down three quarters of a percent. Let's check in on Nvidia, and of earnings later this week, a bit of a pullback in the name off of some of its recent names, down about 2.5%.
And that's market update.
With markets anticipating a rate cut from the US Federal Reserve, one area of focus has been on the health of the consumer. Of course, we are seeing signs of strained household finances. What does it all means the retail sector? Joining us that to discuss is John Kernan, managing Dir., retail and consumer Brands, TD Cowen.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the TD Securities website at the end of this program.
Welcome to the program. First time on.
I'm not hearing John. Let me introduce you again. John, how are you doing?
Welcome to the program.
Seemed to be having a technical difficulty of some sort with John here. Maybe we can get that sorted out for you and get to that conversation about retail stocks and the consumer because the consumer and the economy are pretty important as to what the Fed is going to get up to next. Right now, maybe we'll get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Artificial intelligence in the spotlight this week. Nvidia set to report quarterly results on Wednesday. The chipmakers stock is up some 150% this year amid surging demand for its graphic processing units.
Those power those AI applications that get everyone so excited. The street is expecting revenue to more than double for the quarter, but Nvidia sales forecast will be key for investors. Today to start the week at $126 and change, you've got Nvidia down about 2.5%.
It's another setback for Boeing. Over the weekend, NASA announced it will need to rely on SpaceX to bring two of its astronauts back home from the international space station. While Boeing says it Starliner spacecraft is safe for the astronauts to return on, NASA has decided to fly it's astronauts home in February and the Starliner spacecraft is going to return to the earth empty.
Boeing is down 1.17% right now.
We've got Canadian oil and gas stocks on the move today, crude prices are jumping higher. We got tensions in the Middle East and concerns about a production halt in Libya and that's driving the price of oil higher. That's offsetting lingering concerns we've had this summer about demand weakness in China and a global economic slowdown.
A quick check in on the markets. We will start her on Bay Street. The first day of the trading weekend sadly, last week of August before Labor Day weekend, the unofficial end of summer for money, we are up 47 points on the TSX Composite Index, good for about 1/5 of a percent.
South of the border, let's check in on the S&P 500. We have Nvidia on deck this week, perhaps some concerns among some of the tech place. We are down 23 points or about half of percent.
All right, investors gaining increased confidence out there in the prospects of further central bank rate cuts. We have a new TD Cowen report suggesting the Canadian realist a sector offers interesting opportunities for yield seeking Canadian investors. Our Anthony Okolie has been digging into the report and joins us now with the details. What are we seeing?
>> TD Cowen said that the performance of Canadian REITs last week was strong. CAP Canadian REITs price gains up 4.3% last week, that's the second best performance since November 2023.
Despite the rally, the REITs are still about 20% below the year and 2021 levels, reflecting a lot of interest rate volatility. TD Cowen notes that a lot of that interest rate volatility is beginning to diminish and is becoming a tailwind and set up a headwind as more investors are gaining confidence in near-term rate cuts.
Let's take a look at how REITs compared to other money market instruments like GICs and money market mutual funds. TD Cowen notes that the continued rate cuts could reverse the roughly $330 billion of inflows into term deposits and money market funds over the past 30 months and as yield seeking investors reallocate those funds, TD Cowen sees the potential for Canadian REITs to materially outperform as they did in similar. Since 1998. As rate cuts get underway, TD Cowen sees potential for valuations to trade higher. When we look at Canadian REITs, they are trading at about 85% of their price to net asset value versus the 76% month and low that we saw in May and TD Cowen sees a lot of upside potential to get to 94% or even higher and of course 94% is the post global financial crisis average. When we compare the yields from the Canadian REITs side, it's currently trading around 8.8% yield funds from operations. That compares to the 10 year government bond yield which has a spread of about 5.7%. When you compared to the two year, it's a spread of 5.6%, that is slightly below the 5.8% adjusted long-term average.
That gap has widened significantly over the past two years when the yield curve was steeply inverted. TD Cowen again expects that this yield can continue to improve going forward as the interest rate tailwind continues going forward.
>> Interesting call there, interesting times indeed. We've been waiting a long time for the central banks to act, our Tas and the Fed is on deck. What are some key risks to this perspective on the REITs?
>> These REITs contain risks such as slowing rent growth, higher vacancies and new supply coming onto the market. Also tenant credit risk among others. For their specific coverage universe, with a lot of development products, additional risks include things like construction delays, cost overruns as well as failure to achieve targeted financial projections among some of the key risks there.
>> Interesting stuff as always.
Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, and ICU of the market movers. What we have on our hands on the TSX 60 to start the trading week? We know the topline combatant number modestly in positive territory. Seems to be the energy space doing the lifting today. Nothing really outsized in terms of the moves. CNQ is up about 2%, Suncor 1 1/2, some other names liking there, but this is about an increase in global oil prices. We are seeing American benchmark West Texas up about 3% per barrel, obviously increased tensions in the Middle East over the weekend, also reports out of Libya perhaps of reduction halts playing into the mix and overwhelming concerns we have had about not only global slowing growth but China's economy not really demanding as much crude out of the global industry. Some strength in that space. The financial spaces a little bit makes. We are in bank earnings season. TD reported last week, more of the big Bay Street names on deck this week.
And materials were down a little bit across the board, even though you got gold always touching these new all-time highs it seems every day, a bit of a pause in that trait, Barrick is at about half a percent, Kinross Gold down a little more than a full percent. South of the border, I want to check in on the S&P 100, give us an idea what's happening below the surface of the broader index. Nvidia is on deck to report on Wednesday. When you think about the gains we've seen in the market, there are arguments that it goes beyond the Magnificent Seven but a lot of the excitements in the market has been about artificial intelligence and the promise so 2.5% to the downside for Nvidia, some other tip plays like AMD and Intel on the weak side, Tesla pulling back about 3.5%.
Some green on the screen, it's just not taking up as much real estate. A little bit happening in some noncyclical consumer good stocks and the energy space as well, seeing a bit of a rally there in terms of what we are seeing in the price of crude.
With markets anticipating a rate cut from the US Federal Reserve, one area of focus has been the health of the consumer. Of course, we are seeing the signs that households have been constrained. What does it mean for the retail sector?
Joining us at or discusses John Kiernan, managing director for retail and consumer brands at TD Cowen.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the TD Securities website at the end of this program.
John, welcome to the show!
>> It's great to be here. Thanks for having me.
>> First time have you on the show, let's talk to begin with, before we get to the retail stuff, the parts of the market you cover, your day-to-day working universe.
>> Sure. I cover retail and consumer brands here at TD Cowen.
I've been here for 14 years and I've covered the consumer and retail space throughout that entire time period, so we live and breathe consumer trends, the health of the consumer, the big market Companies that I cover include Nike, Adidas, lululemon, the big retailers like TJX, most of the sporting good retail complex and the princes sell into those stores. It's a big coverage area that keeps us busy and keeps our finger on the pulse of the consumer and trends that are resonating with consumers.
>> So you are saying a few cycles, this is an interesting time as I was saying off the top, anticipation that the Fed could start delivering rate cuts. We look at all the data points, big one obviously for the US economy is that consumer. What's the general environment right now, how are they feeling?
>> The consumer is stronger than the headlines give the broader consumer credit for. There's been a lot of negativity about the consumer, there's been some headlines, some high-profile consumer companies across a variety of sectors have not wanted to top trends going into the summer but I think a lot of that has to do with competition, inflation that shifted spending around. If you look at the broader consumer, the levels of spending that we track, it's still very healthy.
We are at a 4% unemployment rate so the economy is strong, the financial markets are at all-time highs, housing prices are at all-time highs, so it's not all doom and gloom. You also have to remember that the bulk of consumer spending is done by the high income consumer, they come for a tremendous portion of overall spending levels and account for a much higher Porsche portion then the low income consumers would have been more stressed by inflation.
>> Perhaps the consumer is little stronger than headlines would lead us to believe as we check in on the financial news from day-to-day. How did that play out for the most recent earnings season?
What were your big takeaways?
>> Sure, there's been some companies that reacted very favourably and showed tremendous strength on a relative basis across the consumer. In my coverage list, we just heard from the authorized retail complex TJX stores last week, both reported 4% same store sales growth, tremendous gross margin performance, inventory management, outside of my sector, Walmart and Costco which my colleague covers, though stocks are at all-time highs in terms of valuation metrics they have been reporting a lot of upside to consensus expectations so there have been certainly pockets of strength and within that is mixed in pockets of weakness which I think largely or companies catering to lower income and middle income consumers that are stretched by inflation.
>> Is a key for these companies now, I had a sense when I was reading through these reports as well, he said there were pockets of strength, that companies and they cannot use the blanket idea that high interest rates, high cost of borrowing, consumers are tapped, that's what we did not well this quarter. A company really has to show what's going on in the underlying business.
>> Yeah, I think there certainly competitive dynamics for a lot of these companies, competition across a lot of these sectors, especially retail, has ramped up. There is a lot of competition, it's as tense as ever.
It's not just the consumer is not spending, the consumers we, it has to do with there's a lot of competition for the dollars being spent. Spending has been reallocated among categories. There have been some categories that have seen tremendous levels of inflation and you are seeing pressure in those areas so the companies that are delivering the best value, experience and innovation to consumers are still reporting very healthy results.
>> Within your coverage universe, have you started to break it down, are there other areas that are proving their way? I'm thinking sports versus discount versus the affluent buyer.
>> Yes, health and wellness, athletic spending is still very strong. You can see that. Dick's Sporting Goods which has been a great performer since the pandemic, that stock is at all-time highs. They report earnings the week after Labor Day. We expect them to be quite strong versus consensus expectations. You have some upstart peers in the space, like on running and decorators, those companies have been tremendously innovative. Their gross margins continue to expand above consensus expectations.
Sketchers is another one we've like for a long time delivering great price value.
That stock is near all-time highs so there has been some really good performance across consumers which have been bifurcated and you had some real weakness in some of the other may be notable large-cap companies like Nike.
>> Rate cuts, the market seems to be counting on these to a certain degree, pricing them into a certain degree. When it comes to the consumer and retail stocks, look at the effect be if the Fed starts delivering those cuts?
>> It certainly looks like were going to get a cut in September, whether 25 or 50 basis points remains debatable. We can clearly see that the Fed wants to take interest rates significantly lower through 2025 and that's going to be good for the consumer. It's gonna be good for animal spirits and confidence which really at times drive consumer spending. It's gonna lower borrowing costs, there has been a lot of inflation borrowing costs in the last several years, and I think the consumer will respond favourably to this.
There will be some uncertainty removed about the election and outcome in November. I think generally the consumer will be in good shape as we go into 2025.
Certainly there will be pockets of strength and weakness but we are certainly in a more bullish on the consumer camp then may be many of our peers.
>> That's a nice positive catalyst there for the retail space.
What's the biggest risk as you look at your universe?
>> What could go wrong are largely unknown's. That's been the most destructive piece of macro so to speak for the US and global consumer.
Obviously, the pandemic came and went, the supply chain disruptions came and went, nobody could've protected that. I think with the consumers, generally, a lot of it is driven by animal spirits and confidence and if unemployment is still where it is today and the stock market continues to make new all-time highs and housing prices are supported on top of that, you are getting lower mortgage and borrowing costs, inflation is coming down in conjunction with that, I would think it's a pretty good environment for the consumer going into 2025, certainly not the recessionary environment a lot of folks seem to talk to.
>> Fascinating stuff and a great start to the program. More information and a link to the companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video. We are going to get your questions about retail and consumer brand stocks for John Kernan in just a moment's time.
A reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you an update on the markets.
All right. It is Monday, first day of the trading week but it is the last month of August. Let's check in at home for some Bay Street, the TSX Composite Index, we are up 65 points, little more than 1/4 of a percent. You're seeing the price of West Texas intermediate crude, the American benchmark, about 3%. Tensions in the Middle East, news out of Libya about potential production disruptions and has crude on the move. South of the border, Nvidia on deck later in the week to report, a pretty key stock for market sentiment if we think of the tech rally we have seen. This bit of caution in the market. Nvidia was at a little bit off the top the show. The S&P 500, the broader read of the market, is now 19 points, about one third of a percent.
We are back now with John Kernan from TD Cowen, we are taking your questions about retail and consumer brand stocks. First one for you here. Someone wants to get your outlook on lululemon right now.
>> This stock has been a while sentiment ride over the last several years and recently there has been a big change. This stock valuations are back to the lowest levels we have seen in over eight years.
There is some fear in the marketplace that they are being affected by some upstart competition or barriers to entry.
>> Lulu has always been an interesting one because it's athletic apparel and you talked about that competition, the figures reflected in the stock price that the competition could come in and start taking away market share, but they still have that brand image. How much of a moat do they have the name Lulu?
>> I think they have more of a moat and then the market is giving them credit for this point but you certainly have to acknowledge how fast two new competitors are growing, they are privately held, Alo yoga and 40, they are growing fast.
I think there is room for more players in the ass leisure space but the competitive dynamics have changed. Lulu kind of owned the premium level of this ass leisure category by itself for a long time, they just don't have that-- the competitiveness has changed, it has scaled. It doesn't mean their margin structure is at risk or their long-term brand equity. When you look at pricing in the space, lululemon remains right at the top of the new competitors across men's and women's so we think there is, this has been one of the more unique consumer brands created globally in the last 20 years but they face competition and very difficult comparisons on a multiyear basis and they are showing signs of slowing growth and I think you'll see that in the results when they report on Thursday night.
>> Do they have any growth opportunities outside of North America? I know a lot of these companies look overseas, to the Asian market and others. What would lululemon's plan B be?
>> International has been growing, it was up over 54% year-over-year in the first quarter when they reported in June. We expect will be up another 35% plus the second-quarter year-over-year. A lot of the growth is now coming from China and China is simply out of favour with the E institutional investor. The multiple that investors are willing to pay for China-based cash is extremely low. You can see that directly in some of the big China listed companies, Alibaba, Tencent, JD, all of these trade at very depressed multiples, PDD, the owner of Temu, the stock is down 30% today. It was previously a highflying China-based story. So China cash flows are getting valued at extremely low multiples right now because of the macro and geopolitical uncertainty and given that China is probably going to be at least 1/4 of lululemon's total growth the next 3 to 5 years, it's been a source of concern among investors.
>> Interesting stuff there on Lulu. A question from the audience for you.
Someone wants to know, are companies like marshals and winners attracting more customers with the high cost of living?
Both of those companies fall under that TJX umbrella.
>> TJX has been one of our favourite stocks for a long time, I think when you look at the customer acquisition trends, they have been in Norma's. They are gaining consumers, older consumers, younger consumers, higher income among consumers, lower income consumers, there is been a trade down into mar Max, there marshals and T.J. Maxx banners, and whether that's in the United States are appearing Canada, they have been acquiring a lot of consumers were and are reporting very strong results. They are buying inventory more efficiently and better across a wider range of categories, not just the traditional apparel categories, they are now getting bigger in home, they are getting bigger in beauty, they are getting bigger in consumables. The value that they are delivering to consumers, the price value equation, is really resonating and you just saw them report very strong results two weeks ago and raise full-year guidance and we think it will continue to do so three year end.
>> And someone is taking a look at this company in doing their research, what do they need to keep in mind in terms of risk for TJX?
>> It's competitive. They are competing against everybody. They are competing against department stores, specialty stores, Amazon, the e-commerce players.
TJX, less than 1% of the revenue has gone digitally but that is turning into a competitive moat for them in that consumers one favour the brick-and-mortar shopping experience for certain categories and TJX delivers a great in-store experience it with great branded value that cannot be replicated online, a concern that we have had a Shein.
Shein is probably the largest digital apparel retailer in North America now.
Obviously, a China-based company that has faced a lot of regulatory scrutiny. They are still searching for an exchange to do an IPO on. I think they have found there, the US listing was going to work, the London listing was not going to work and Shein is a formal competitor to the eyes of the US regulators and to TJ Maxx in the retail sector.
>> Interesting stuff there. TD Cowen covers lululemon and TJX. And for more information, a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for John Kiernan on retail stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
If you are looking to manage your risk during periods of market volatility, you may consider using limit orders. Meagan Henriques, Senior client education instructor with TD Direct Investing has more.
>> So it's very important for investors when they start trading to understand the difference between market orders and limit orders. Imagine you were going to a car dealership to buy a car and you see a price that's listed. If you decide to pay that price, that's like buying it at market. Whereas if you try to negotiate with that car dealer, then it's like putting a limit price where there is a risk that if the car dealer doesn't agree, you might not be able to get the car, but if it goes through, you are getting it at a price that you are happy with. So let's get into web broker so I can show you how this is done with your trading.
We are ready to place a trade. I'm going to go to buy and sell.
And let's put in, it doesn't really matter, I will put Disney.
So… When we are placing this trade and right now I have a quote for Disney on the rate, we see the current price, it last traded at $91.23, and if we were buying it at market, we are buying it at the current best price, which would be to ask price.
So 9124.
And because markets to do move, it is possible that by the time you're trade is placed, you are going to get filled at a higher price or lower. When you're doing it at a market, you have no control over the price but you're trade is going to go through. Whereas if you wanted to change this to limit, and here's where again that negotiation almost comes into play. So here I can say I only want to buy this at $85. Now, the risk here again, just like before, is that if there are no sellers who want to drop their price to 85, then I'm not gonna be able to own the shares, but if I do find one, then I will be able to get in at $85 or lower, so a price that I have some control over because it's not going to be filled at any price higher than 85. This is going to be extremely handy when or if we decide to place trades on the extended market. So when we are placing a trade on market, we may have noticed that our good till is limited to either day or specified. But with a limit order, on a company that is trading on the US market, we will see that we will have a feud additional features such as day, specify cancel and day plus extended markets, so that he would not see on the Canadian side, it's only for the US at a limit price. And this is because it can be very volatile in that market so there would be no surprise because you're specifying your price. Let's say again here, I put that 85, so I know that it's only going to be filled at $85 or less.
And now you know the advantages of placing limit orders.
>> Our thanks to Meagan Henriques, Senior client education instructor at TD Direct Investing. For more educational resources, check at the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once there, you are going to find more informative videos.
We are back with John Kernan, take your questions about retail stocks. Next one here for you. Someone wants to get your take on Nike.
>> Yeah, sure. Nike has been reporting pretty tough results the last several quarters and that initial outlook for their physical 25 was extremely weak and you saw their stock go down 25% when the reported results in June.
Given the competition they face from a variety of peers such as on running, Rocha, New Balance and even lululemon in the apparel industry and others so we are pretty cautious about the direction of that turnaround.
They recently expressed confidence, the CEO, someone on the board and owns over 85% of the voting rights, he has given John a lot of the support, but there are concerns about strategy at Nike and when they get to their investor day in November in Portland there will be a lot of questions from analyst investors about the direction of growth and long-term margin structure which has been under a lot of pressure.
>> Is that one of the tough things about these kind of place? I think about a company and like Nike and when I was young man, that was a you had to have.
You mentioned New Balance. I remember my kids, my kids are 21 and 19, my younger kid got a pair of new balance and I thought they were for all people but apparently they are the coolest out there.
Is that one of the tough things, determining trends?
>> I think when I covered the space six or seven years ago, it was so much easier to cover Nike and some of its larger peers like Adidas, it was bigger and may be resonated more in the marketplace because the market was more concentrated and I think the last 4 to 5 years have seen barriers to entry really to client for a variety of reasons. One, the competition is making better product, getting noticed by consumers more. Social commerce, Instagram, TikTok, Facebook, YouTube, it has really opened up the eyes of consumers to a variety of brands and those brands have a much easier time communicating with consumers and the acquisition cost of these consumers is not particularly high.
Nike is just dealing with an onslaught of competition that was just not scaled the way it is now.
>> In terms of them trying to right the ship and turn it in another direction, what could go right for Nike?
Is it just getting in favour with the kids?
>> I think it has to be less about trend.
This entire sector needs to stop chasing every fashion trend on social media. What really needs to change and to make all of these businesses less cyclical and trend driven is process driven innovation around supply chain and distribution. I think that's were Nike has lagged. I think the supply chain underperformed peers dramatically.
When you go back to 2021 when Vietnam shut down and into 2022 when there was a lot of supply chain inflation and disruption, Nike suffered more disproportionately versus its peers and I think to create lasting change and more durable margin structure and returns and more stable gross margin, you need to do more here than tracing the best trend because the trend will eventually end and you're not gonna be able to time it perfectly with your inventory bias and product design so I think you been more of an operationally led turnaround care versus chasing a trend and trying to figure out what team consumers want. That is not going to make durable change here.
>> Interesting stuff there on Nike. Next question now from the audience. Golf seems more popular than ever, good time to look at Topgolf Callaway?
>> I love golf, I am a big golfer.
Unfortunately, and I don't think now is a good time to look at Topgolf or Callaway.
The company did announce that they were pursuing strategic alternatives for the Topgolf business on their last earnings call. The same venue sales for Topgolf have really slowed. The cost of building and maintaining Topgolf's in terms of optics and capex is incredibly high.
To finance the growth the company needs to take on, it typically needs to borrow money from landlords to do that and it's not a self financing growth story so we are cautious on the direction of that story despite the fact that golf is resonating and the equipment side of the business, the premium ionization so to speak and the pricing power of the category has resonated, you have seen that in some of the competitor stocks, there has been some really strong results out of those companies, but Topgolf and Callaway are suffering right now from the capital needs of Topgolf and the slowdown in that business from a topline's perspective so we are pretty cautious in terms of both of those businesses.
>> What would you need to see from Topgolf? What would change that thesis?
>> I don't think anything will change our thesis on Topgolf because it's incredibly capital-intensive.
It consumes cash to expand it. It's a very expensive venue to operate, so a tremendous amount of both fixed and variable costs in that financial model and I think the management team at Topgolf would be well served to slow that businesses topline growth and expansion down and focus on the existing venues that are there.
So there's not a whole lot. We have looked at the model many different ways and we can't, we don't think that Topgolf, the implied valuation of Topgolf is very attractive here.
>> Interesting stuff here on that name.
Back to apparel now. Someone wants to get your opinion on under Armour.
>> Total turnaround story.
Kevin plank announced he was coming back to be CEO several months ago and the brand is over disputed with too many lower price points across men's and women's apparel and footwear. I think it's going to take some real time. You have to shrink the topline it under Armour pretty significantly to get that back to a more normalized margin structure. That's tough for us to value.
The stock is done quite well since they reported Q1 earnings a few weeks back and I think it's pretty fairly valued at this point and it's been a shared donator relative to many of their peers in that space regarding seed share over time and if they have to reduce some of the less premium distribution that they have, that will put some pressure.
>> Where it is a name like under Armour sit in the consumer consciousness? If a lululemon is that higher offering I sort of and coveted, word is under Armour sit?
>> Under Armour sits in a very promotional area of the ecosystem which becomes very competitive. The margin profile of that business is much lower and I think that's why under Armour needs to figure out how to become a more premium lead brand and tell stories about their innovation and price value that they offer versus it seems like the brain communicates extensively with consumers via discount and that does not work well because anybody can operate in that area. The reason why you have seen lululemon and some other peers generate high-margin structures over a longer period of time as they operated the premium space and is less commoditized and competitive.
>> Interesting stuff. TD Cowen covers Nike, Topgolf, Callaway and under Armour.
For more information and a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the deal. We will get back your questions for John Kiernan on retail stocks in just a moment's time. As always, make sure you do your own research before making any investment decisions. and a reminder that you can get in touch with us at any time.
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We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with John Kernan from TD Cowen. Another question for you. Someone wants to know what you think of Columbia.
>> This brand flies under the radar at times. The stock is heavily owned by family. It's a $5 billion market And only about 50% of the flow is probably traded because the rest resides with the family and it's a brand that operates at an entry-level price point in outerwear and a bunch of their parol footwear. It's been under more competitive competition recently. The valuation has contracted pretty meaningfully from our was five years ago. They pay a healthy dividend and we think the brand occupies an interesting space in the marketplace, that entry-level price point. But again, there's a lot of competition. Their margin structure has been under pressure. They haven't quite figured out footwear. That's made us a little bit more cautious on Columbia.
>> Going forward, we do need to see from the name that would make you perhaps a little more interested in it?
>> Yeah, I think you have to see more stable topline growth, better inventory management and control of their operating margin which has seen a lot of volatility the last 3 to 5 years so I think you would have to see gross to think that the valuation was really attractive here. The brand durability, I think Columbia has been around a long time, they've been innovating in those entry-level price points for outerwear in men's and ladies apparel and footwear for a long time but I think it's a more competitive marketplace than it has been in the past and that gives us some pause.
If we thought there was a pathway towards higher operating margin, gross margin, going forward, and that could change her opinion for sure. I just don't see that on the horizon.
>> How to European sports brands look?
>> Adidas has been in a bit of a renaissance globally and in the United States.
Back in late 2022, the company hired a CEO and he was the CEO of Houma at the time.
He's done a phenomenal job fixing the culture internally at Adidas. I think he's done a great job of fixing the go to market strategy. We are seeing a lot of innovation out of Adidas recently. We are also seeing their retro product, the stance miss, the Sambo's really resonate in the marketplace, they are putting new colourways and a lot of excitements into the market place. It's putting a lot of pressure on Nike. They go neck and neck and a lot of channels in right now Adidas is the one resonating more, particularly in Europe but also in the US. So things are looking up for Adidas.
>> When I was young, that was the play, you're either Nikes or Adidas. There was no other choice if you wanted to be cool.
>> Puma is theretoo. They are very wholesale channel driven. They do not operate a lot of stores and their e-commerce platform is not that big.
That has put pressure on them.
It's a competitive market.
Losing their CEO to Adidas has hurt their competitiveness in the marketplace but it's a very cheap… The valuation has been discounted pretty significantly and we've been somewhat cautious on the direction of their growth.
>> Interesting stuff. We are out of time for questions. Before I let you go, it's gonna be a significant fall, when we get out of the summer, perhaps a rate cut from the Fed, we definitely have an election coming. What should people be thinking about if they are thinking about the retail space?
>> We are excited for the wrapup of back-to-school season. We have seen some real winners in terms of trend and value that they are providing. I think the holiday season will be a little bit better. You will see some growth. I think last year the holiday surprised a lot of folks to the upside and I think the consumer is in better shape. We would like to see animal spirits improve a bit. We think that can happen. As we get through this lowering of interest rates and this election cycle, I think things will be fine for the consumer broadly. There will be pockets of strength and weakness. It's certainly not a by everything type of environment in the consumer discretionary space but there certainly some things to be excited about. There always are. There are always companies, brands resonating, those delivering phenomenal value and scaling so I think there's a lot to be excited about for retail into the holidays and into 2025.
>> I enjoyed the conversation in your insights. Hopefully we can do it again sometime.
>> Thank you.
>> Our thanks to John Kernan, managing director for retail and consumer brands at TD Cowen. TD Cowen covers Columbia, Houma and Adidas, and for more information, a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions. if we did not have time to get your questions today, we will aim to get them into future shows. Stay tuned for tomorrow's show. Evan Chen, associate or portly research at TD Asset Management will be our guest. He wants to take your questions about technology stocks. You can get a head start with those questions.
Just email MoneyTalkLive@TD.com. That's all the time we have for today. Thanks for watching. We'll see you tomorrow.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we discussed the outlook for retail stocks amid signs of increasingly stretched consumers. TD Cowen's John Kernan joined us. MoneyTalk's Anthony Okolie is going to discuss the outlook for real estate investment trusts as interest rates can lower and in today's WebBroker education segment, Meagan Henriques is going to take us through how limit orders work.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got the first trading day of the week here underway. The TSX Composite Index making a gain of 40 points, up a little more than 1/10 of a percent. Seeing the price of West Texas intermediate crude up about 3% on tensions in the Middle East, some news out of Libya, has some of our oil and gas names on the move.
Including Cenovus, let's check in on that name. At 2597, it's up shy of just one person. Denison Mines, want to check in on this uranium play. News out of Kazakhstan last week, there your production curves next year, sent a lot of the stock higher.
They continue to move higher off that news. At $2.35 per share, Denison is up almost 3%. South of the border, a little bit of weakness in the markets after the pretty strong rally of the last two weeks since that correction.
24 points to the downside, a little less than half a percent. You have Nvidia on deck later this week, perhaps a little nervousness among the tech stocks. Let's check in among the tech heavy NASDAQ, Seo is sharing amongst the broader market.
Down three quarters of a percent. Let's check in on Nvidia, and of earnings later this week, a bit of a pullback in the name off of some of its recent names, down about 2.5%.
And that's market update.
With markets anticipating a rate cut from the US Federal Reserve, one area of focus has been on the health of the consumer. Of course, we are seeing signs of strained household finances. What does it all means the retail sector? Joining us that to discuss is John Kernan, managing Dir., retail and consumer Brands, TD Cowen.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the TD Securities website at the end of this program.
Welcome to the program. First time on.
I'm not hearing John. Let me introduce you again. John, how are you doing?
Welcome to the program.
Seemed to be having a technical difficulty of some sort with John here. Maybe we can get that sorted out for you and get to that conversation about retail stocks and the consumer because the consumer and the economy are pretty important as to what the Fed is going to get up to next. Right now, maybe we'll get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Artificial intelligence in the spotlight this week. Nvidia set to report quarterly results on Wednesday. The chipmakers stock is up some 150% this year amid surging demand for its graphic processing units.
Those power those AI applications that get everyone so excited. The street is expecting revenue to more than double for the quarter, but Nvidia sales forecast will be key for investors. Today to start the week at $126 and change, you've got Nvidia down about 2.5%.
It's another setback for Boeing. Over the weekend, NASA announced it will need to rely on SpaceX to bring two of its astronauts back home from the international space station. While Boeing says it Starliner spacecraft is safe for the astronauts to return on, NASA has decided to fly it's astronauts home in February and the Starliner spacecraft is going to return to the earth empty.
Boeing is down 1.17% right now.
We've got Canadian oil and gas stocks on the move today, crude prices are jumping higher. We got tensions in the Middle East and concerns about a production halt in Libya and that's driving the price of oil higher. That's offsetting lingering concerns we've had this summer about demand weakness in China and a global economic slowdown.
A quick check in on the markets. We will start her on Bay Street. The first day of the trading weekend sadly, last week of August before Labor Day weekend, the unofficial end of summer for money, we are up 47 points on the TSX Composite Index, good for about 1/5 of a percent.
South of the border, let's check in on the S&P 500. We have Nvidia on deck this week, perhaps some concerns among some of the tech place. We are down 23 points or about half of percent.
All right, investors gaining increased confidence out there in the prospects of further central bank rate cuts. We have a new TD Cowen report suggesting the Canadian realist a sector offers interesting opportunities for yield seeking Canadian investors. Our Anthony Okolie has been digging into the report and joins us now with the details. What are we seeing?
>> TD Cowen said that the performance of Canadian REITs last week was strong. CAP Canadian REITs price gains up 4.3% last week, that's the second best performance since November 2023.
Despite the rally, the REITs are still about 20% below the year and 2021 levels, reflecting a lot of interest rate volatility. TD Cowen notes that a lot of that interest rate volatility is beginning to diminish and is becoming a tailwind and set up a headwind as more investors are gaining confidence in near-term rate cuts.
Let's take a look at how REITs compared to other money market instruments like GICs and money market mutual funds. TD Cowen notes that the continued rate cuts could reverse the roughly $330 billion of inflows into term deposits and money market funds over the past 30 months and as yield seeking investors reallocate those funds, TD Cowen sees the potential for Canadian REITs to materially outperform as they did in similar. Since 1998. As rate cuts get underway, TD Cowen sees potential for valuations to trade higher. When we look at Canadian REITs, they are trading at about 85% of their price to net asset value versus the 76% month and low that we saw in May and TD Cowen sees a lot of upside potential to get to 94% or even higher and of course 94% is the post global financial crisis average. When we compare the yields from the Canadian REITs side, it's currently trading around 8.8% yield funds from operations. That compares to the 10 year government bond yield which has a spread of about 5.7%. When you compared to the two year, it's a spread of 5.6%, that is slightly below the 5.8% adjusted long-term average.
That gap has widened significantly over the past two years when the yield curve was steeply inverted. TD Cowen again expects that this yield can continue to improve going forward as the interest rate tailwind continues going forward.
>> Interesting call there, interesting times indeed. We've been waiting a long time for the central banks to act, our Tas and the Fed is on deck. What are some key risks to this perspective on the REITs?
>> These REITs contain risks such as slowing rent growth, higher vacancies and new supply coming onto the market. Also tenant credit risk among others. For their specific coverage universe, with a lot of development products, additional risks include things like construction delays, cost overruns as well as failure to achieve targeted financial projections among some of the key risks there.
>> Interesting stuff as always.
Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, and ICU of the market movers. What we have on our hands on the TSX 60 to start the trading week? We know the topline combatant number modestly in positive territory. Seems to be the energy space doing the lifting today. Nothing really outsized in terms of the moves. CNQ is up about 2%, Suncor 1 1/2, some other names liking there, but this is about an increase in global oil prices. We are seeing American benchmark West Texas up about 3% per barrel, obviously increased tensions in the Middle East over the weekend, also reports out of Libya perhaps of reduction halts playing into the mix and overwhelming concerns we have had about not only global slowing growth but China's economy not really demanding as much crude out of the global industry. Some strength in that space. The financial spaces a little bit makes. We are in bank earnings season. TD reported last week, more of the big Bay Street names on deck this week.
And materials were down a little bit across the board, even though you got gold always touching these new all-time highs it seems every day, a bit of a pause in that trait, Barrick is at about half a percent, Kinross Gold down a little more than a full percent. South of the border, I want to check in on the S&P 100, give us an idea what's happening below the surface of the broader index. Nvidia is on deck to report on Wednesday. When you think about the gains we've seen in the market, there are arguments that it goes beyond the Magnificent Seven but a lot of the excitements in the market has been about artificial intelligence and the promise so 2.5% to the downside for Nvidia, some other tip plays like AMD and Intel on the weak side, Tesla pulling back about 3.5%.
Some green on the screen, it's just not taking up as much real estate. A little bit happening in some noncyclical consumer good stocks and the energy space as well, seeing a bit of a rally there in terms of what we are seeing in the price of crude.
With markets anticipating a rate cut from the US Federal Reserve, one area of focus has been the health of the consumer. Of course, we are seeing the signs that households have been constrained. What does it mean for the retail sector?
Joining us at or discusses John Kiernan, managing director for retail and consumer brands at TD Cowen.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the TD Securities website at the end of this program.
John, welcome to the show!
>> It's great to be here. Thanks for having me.
>> First time have you on the show, let's talk to begin with, before we get to the retail stuff, the parts of the market you cover, your day-to-day working universe.
>> Sure. I cover retail and consumer brands here at TD Cowen.
I've been here for 14 years and I've covered the consumer and retail space throughout that entire time period, so we live and breathe consumer trends, the health of the consumer, the big market Companies that I cover include Nike, Adidas, lululemon, the big retailers like TJX, most of the sporting good retail complex and the princes sell into those stores. It's a big coverage area that keeps us busy and keeps our finger on the pulse of the consumer and trends that are resonating with consumers.
>> So you are saying a few cycles, this is an interesting time as I was saying off the top, anticipation that the Fed could start delivering rate cuts. We look at all the data points, big one obviously for the US economy is that consumer. What's the general environment right now, how are they feeling?
>> The consumer is stronger than the headlines give the broader consumer credit for. There's been a lot of negativity about the consumer, there's been some headlines, some high-profile consumer companies across a variety of sectors have not wanted to top trends going into the summer but I think a lot of that has to do with competition, inflation that shifted spending around. If you look at the broader consumer, the levels of spending that we track, it's still very healthy.
We are at a 4% unemployment rate so the economy is strong, the financial markets are at all-time highs, housing prices are at all-time highs, so it's not all doom and gloom. You also have to remember that the bulk of consumer spending is done by the high income consumer, they come for a tremendous portion of overall spending levels and account for a much higher Porsche portion then the low income consumers would have been more stressed by inflation.
>> Perhaps the consumer is little stronger than headlines would lead us to believe as we check in on the financial news from day-to-day. How did that play out for the most recent earnings season?
What were your big takeaways?
>> Sure, there's been some companies that reacted very favourably and showed tremendous strength on a relative basis across the consumer. In my coverage list, we just heard from the authorized retail complex TJX stores last week, both reported 4% same store sales growth, tremendous gross margin performance, inventory management, outside of my sector, Walmart and Costco which my colleague covers, though stocks are at all-time highs in terms of valuation metrics they have been reporting a lot of upside to consensus expectations so there have been certainly pockets of strength and within that is mixed in pockets of weakness which I think largely or companies catering to lower income and middle income consumers that are stretched by inflation.
>> Is a key for these companies now, I had a sense when I was reading through these reports as well, he said there were pockets of strength, that companies and they cannot use the blanket idea that high interest rates, high cost of borrowing, consumers are tapped, that's what we did not well this quarter. A company really has to show what's going on in the underlying business.
>> Yeah, I think there certainly competitive dynamics for a lot of these companies, competition across a lot of these sectors, especially retail, has ramped up. There is a lot of competition, it's as tense as ever.
It's not just the consumer is not spending, the consumers we, it has to do with there's a lot of competition for the dollars being spent. Spending has been reallocated among categories. There have been some categories that have seen tremendous levels of inflation and you are seeing pressure in those areas so the companies that are delivering the best value, experience and innovation to consumers are still reporting very healthy results.
>> Within your coverage universe, have you started to break it down, are there other areas that are proving their way? I'm thinking sports versus discount versus the affluent buyer.
>> Yes, health and wellness, athletic spending is still very strong. You can see that. Dick's Sporting Goods which has been a great performer since the pandemic, that stock is at all-time highs. They report earnings the week after Labor Day. We expect them to be quite strong versus consensus expectations. You have some upstart peers in the space, like on running and decorators, those companies have been tremendously innovative. Their gross margins continue to expand above consensus expectations.
Sketchers is another one we've like for a long time delivering great price value.
That stock is near all-time highs so there has been some really good performance across consumers which have been bifurcated and you had some real weakness in some of the other may be notable large-cap companies like Nike.
>> Rate cuts, the market seems to be counting on these to a certain degree, pricing them into a certain degree. When it comes to the consumer and retail stocks, look at the effect be if the Fed starts delivering those cuts?
>> It certainly looks like were going to get a cut in September, whether 25 or 50 basis points remains debatable. We can clearly see that the Fed wants to take interest rates significantly lower through 2025 and that's going to be good for the consumer. It's gonna be good for animal spirits and confidence which really at times drive consumer spending. It's gonna lower borrowing costs, there has been a lot of inflation borrowing costs in the last several years, and I think the consumer will respond favourably to this.
There will be some uncertainty removed about the election and outcome in November. I think generally the consumer will be in good shape as we go into 2025.
Certainly there will be pockets of strength and weakness but we are certainly in a more bullish on the consumer camp then may be many of our peers.
>> That's a nice positive catalyst there for the retail space.
What's the biggest risk as you look at your universe?
>> What could go wrong are largely unknown's. That's been the most destructive piece of macro so to speak for the US and global consumer.
Obviously, the pandemic came and went, the supply chain disruptions came and went, nobody could've protected that. I think with the consumers, generally, a lot of it is driven by animal spirits and confidence and if unemployment is still where it is today and the stock market continues to make new all-time highs and housing prices are supported on top of that, you are getting lower mortgage and borrowing costs, inflation is coming down in conjunction with that, I would think it's a pretty good environment for the consumer going into 2025, certainly not the recessionary environment a lot of folks seem to talk to.
>> Fascinating stuff and a great start to the program. More information and a link to the companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video. We are going to get your questions about retail and consumer brand stocks for John Kernan in just a moment's time.
A reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you an update on the markets.
All right. It is Monday, first day of the trading week but it is the last month of August. Let's check in at home for some Bay Street, the TSX Composite Index, we are up 65 points, little more than 1/4 of a percent. You're seeing the price of West Texas intermediate crude, the American benchmark, about 3%. Tensions in the Middle East, news out of Libya about potential production disruptions and has crude on the move. South of the border, Nvidia on deck later in the week to report, a pretty key stock for market sentiment if we think of the tech rally we have seen. This bit of caution in the market. Nvidia was at a little bit off the top the show. The S&P 500, the broader read of the market, is now 19 points, about one third of a percent.
We are back now with John Kernan from TD Cowen, we are taking your questions about retail and consumer brand stocks. First one for you here. Someone wants to get your outlook on lululemon right now.
>> This stock has been a while sentiment ride over the last several years and recently there has been a big change. This stock valuations are back to the lowest levels we have seen in over eight years.
There is some fear in the marketplace that they are being affected by some upstart competition or barriers to entry.
>> Lulu has always been an interesting one because it's athletic apparel and you talked about that competition, the figures reflected in the stock price that the competition could come in and start taking away market share, but they still have that brand image. How much of a moat do they have the name Lulu?
>> I think they have more of a moat and then the market is giving them credit for this point but you certainly have to acknowledge how fast two new competitors are growing, they are privately held, Alo yoga and 40, they are growing fast.
I think there is room for more players in the ass leisure space but the competitive dynamics have changed. Lulu kind of owned the premium level of this ass leisure category by itself for a long time, they just don't have that-- the competitiveness has changed, it has scaled. It doesn't mean their margin structure is at risk or their long-term brand equity. When you look at pricing in the space, lululemon remains right at the top of the new competitors across men's and women's so we think there is, this has been one of the more unique consumer brands created globally in the last 20 years but they face competition and very difficult comparisons on a multiyear basis and they are showing signs of slowing growth and I think you'll see that in the results when they report on Thursday night.
>> Do they have any growth opportunities outside of North America? I know a lot of these companies look overseas, to the Asian market and others. What would lululemon's plan B be?
>> International has been growing, it was up over 54% year-over-year in the first quarter when they reported in June. We expect will be up another 35% plus the second-quarter year-over-year. A lot of the growth is now coming from China and China is simply out of favour with the E institutional investor. The multiple that investors are willing to pay for China-based cash is extremely low. You can see that directly in some of the big China listed companies, Alibaba, Tencent, JD, all of these trade at very depressed multiples, PDD, the owner of Temu, the stock is down 30% today. It was previously a highflying China-based story. So China cash flows are getting valued at extremely low multiples right now because of the macro and geopolitical uncertainty and given that China is probably going to be at least 1/4 of lululemon's total growth the next 3 to 5 years, it's been a source of concern among investors.
>> Interesting stuff there on Lulu. A question from the audience for you.
Someone wants to know, are companies like marshals and winners attracting more customers with the high cost of living?
Both of those companies fall under that TJX umbrella.
>> TJX has been one of our favourite stocks for a long time, I think when you look at the customer acquisition trends, they have been in Norma's. They are gaining consumers, older consumers, younger consumers, higher income among consumers, lower income consumers, there is been a trade down into mar Max, there marshals and T.J. Maxx banners, and whether that's in the United States are appearing Canada, they have been acquiring a lot of consumers were and are reporting very strong results. They are buying inventory more efficiently and better across a wider range of categories, not just the traditional apparel categories, they are now getting bigger in home, they are getting bigger in beauty, they are getting bigger in consumables. The value that they are delivering to consumers, the price value equation, is really resonating and you just saw them report very strong results two weeks ago and raise full-year guidance and we think it will continue to do so three year end.
>> And someone is taking a look at this company in doing their research, what do they need to keep in mind in terms of risk for TJX?
>> It's competitive. They are competing against everybody. They are competing against department stores, specialty stores, Amazon, the e-commerce players.
TJX, less than 1% of the revenue has gone digitally but that is turning into a competitive moat for them in that consumers one favour the brick-and-mortar shopping experience for certain categories and TJX delivers a great in-store experience it with great branded value that cannot be replicated online, a concern that we have had a Shein.
Shein is probably the largest digital apparel retailer in North America now.
Obviously, a China-based company that has faced a lot of regulatory scrutiny. They are still searching for an exchange to do an IPO on. I think they have found there, the US listing was going to work, the London listing was not going to work and Shein is a formal competitor to the eyes of the US regulators and to TJ Maxx in the retail sector.
>> Interesting stuff there. TD Cowen covers lululemon and TJX. And for more information, a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for John Kiernan on retail stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
If you are looking to manage your risk during periods of market volatility, you may consider using limit orders. Meagan Henriques, Senior client education instructor with TD Direct Investing has more.
>> So it's very important for investors when they start trading to understand the difference between market orders and limit orders. Imagine you were going to a car dealership to buy a car and you see a price that's listed. If you decide to pay that price, that's like buying it at market. Whereas if you try to negotiate with that car dealer, then it's like putting a limit price where there is a risk that if the car dealer doesn't agree, you might not be able to get the car, but if it goes through, you are getting it at a price that you are happy with. So let's get into web broker so I can show you how this is done with your trading.
We are ready to place a trade. I'm going to go to buy and sell.
And let's put in, it doesn't really matter, I will put Disney.
So… When we are placing this trade and right now I have a quote for Disney on the rate, we see the current price, it last traded at $91.23, and if we were buying it at market, we are buying it at the current best price, which would be to ask price.
So 9124.
And because markets to do move, it is possible that by the time you're trade is placed, you are going to get filled at a higher price or lower. When you're doing it at a market, you have no control over the price but you're trade is going to go through. Whereas if you wanted to change this to limit, and here's where again that negotiation almost comes into play. So here I can say I only want to buy this at $85. Now, the risk here again, just like before, is that if there are no sellers who want to drop their price to 85, then I'm not gonna be able to own the shares, but if I do find one, then I will be able to get in at $85 or lower, so a price that I have some control over because it's not going to be filled at any price higher than 85. This is going to be extremely handy when or if we decide to place trades on the extended market. So when we are placing a trade on market, we may have noticed that our good till is limited to either day or specified. But with a limit order, on a company that is trading on the US market, we will see that we will have a feud additional features such as day, specify cancel and day plus extended markets, so that he would not see on the Canadian side, it's only for the US at a limit price. And this is because it can be very volatile in that market so there would be no surprise because you're specifying your price. Let's say again here, I put that 85, so I know that it's only going to be filled at $85 or less.
And now you know the advantages of placing limit orders.
>> Our thanks to Meagan Henriques, Senior client education instructor at TD Direct Investing. For more educational resources, check at the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once there, you are going to find more informative videos.
We are back with John Kernan, take your questions about retail stocks. Next one here for you. Someone wants to get your take on Nike.
>> Yeah, sure. Nike has been reporting pretty tough results the last several quarters and that initial outlook for their physical 25 was extremely weak and you saw their stock go down 25% when the reported results in June.
Given the competition they face from a variety of peers such as on running, Rocha, New Balance and even lululemon in the apparel industry and others so we are pretty cautious about the direction of that turnaround.
They recently expressed confidence, the CEO, someone on the board and owns over 85% of the voting rights, he has given John a lot of the support, but there are concerns about strategy at Nike and when they get to their investor day in November in Portland there will be a lot of questions from analyst investors about the direction of growth and long-term margin structure which has been under a lot of pressure.
>> Is that one of the tough things about these kind of place? I think about a company and like Nike and when I was young man, that was a you had to have.
You mentioned New Balance. I remember my kids, my kids are 21 and 19, my younger kid got a pair of new balance and I thought they were for all people but apparently they are the coolest out there.
Is that one of the tough things, determining trends?
>> I think when I covered the space six or seven years ago, it was so much easier to cover Nike and some of its larger peers like Adidas, it was bigger and may be resonated more in the marketplace because the market was more concentrated and I think the last 4 to 5 years have seen barriers to entry really to client for a variety of reasons. One, the competition is making better product, getting noticed by consumers more. Social commerce, Instagram, TikTok, Facebook, YouTube, it has really opened up the eyes of consumers to a variety of brands and those brands have a much easier time communicating with consumers and the acquisition cost of these consumers is not particularly high.
Nike is just dealing with an onslaught of competition that was just not scaled the way it is now.
>> In terms of them trying to right the ship and turn it in another direction, what could go right for Nike?
Is it just getting in favour with the kids?
>> I think it has to be less about trend.
This entire sector needs to stop chasing every fashion trend on social media. What really needs to change and to make all of these businesses less cyclical and trend driven is process driven innovation around supply chain and distribution. I think that's were Nike has lagged. I think the supply chain underperformed peers dramatically.
When you go back to 2021 when Vietnam shut down and into 2022 when there was a lot of supply chain inflation and disruption, Nike suffered more disproportionately versus its peers and I think to create lasting change and more durable margin structure and returns and more stable gross margin, you need to do more here than tracing the best trend because the trend will eventually end and you're not gonna be able to time it perfectly with your inventory bias and product design so I think you been more of an operationally led turnaround care versus chasing a trend and trying to figure out what team consumers want. That is not going to make durable change here.
>> Interesting stuff there on Nike. Next question now from the audience. Golf seems more popular than ever, good time to look at Topgolf Callaway?
>> I love golf, I am a big golfer.
Unfortunately, and I don't think now is a good time to look at Topgolf or Callaway.
The company did announce that they were pursuing strategic alternatives for the Topgolf business on their last earnings call. The same venue sales for Topgolf have really slowed. The cost of building and maintaining Topgolf's in terms of optics and capex is incredibly high.
To finance the growth the company needs to take on, it typically needs to borrow money from landlords to do that and it's not a self financing growth story so we are cautious on the direction of that story despite the fact that golf is resonating and the equipment side of the business, the premium ionization so to speak and the pricing power of the category has resonated, you have seen that in some of the competitor stocks, there has been some really strong results out of those companies, but Topgolf and Callaway are suffering right now from the capital needs of Topgolf and the slowdown in that business from a topline's perspective so we are pretty cautious in terms of both of those businesses.
>> What would you need to see from Topgolf? What would change that thesis?
>> I don't think anything will change our thesis on Topgolf because it's incredibly capital-intensive.
It consumes cash to expand it. It's a very expensive venue to operate, so a tremendous amount of both fixed and variable costs in that financial model and I think the management team at Topgolf would be well served to slow that businesses topline growth and expansion down and focus on the existing venues that are there.
So there's not a whole lot. We have looked at the model many different ways and we can't, we don't think that Topgolf, the implied valuation of Topgolf is very attractive here.
>> Interesting stuff here on that name.
Back to apparel now. Someone wants to get your opinion on under Armour.
>> Total turnaround story.
Kevin plank announced he was coming back to be CEO several months ago and the brand is over disputed with too many lower price points across men's and women's apparel and footwear. I think it's going to take some real time. You have to shrink the topline it under Armour pretty significantly to get that back to a more normalized margin structure. That's tough for us to value.
The stock is done quite well since they reported Q1 earnings a few weeks back and I think it's pretty fairly valued at this point and it's been a shared donator relative to many of their peers in that space regarding seed share over time and if they have to reduce some of the less premium distribution that they have, that will put some pressure.
>> Where it is a name like under Armour sit in the consumer consciousness? If a lululemon is that higher offering I sort of and coveted, word is under Armour sit?
>> Under Armour sits in a very promotional area of the ecosystem which becomes very competitive. The margin profile of that business is much lower and I think that's why under Armour needs to figure out how to become a more premium lead brand and tell stories about their innovation and price value that they offer versus it seems like the brain communicates extensively with consumers via discount and that does not work well because anybody can operate in that area. The reason why you have seen lululemon and some other peers generate high-margin structures over a longer period of time as they operated the premium space and is less commoditized and competitive.
>> Interesting stuff. TD Cowen covers Nike, Topgolf, Callaway and under Armour.
For more information and a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the deal. We will get back your questions for John Kiernan on retail stocks in just a moment's time. As always, make sure you do your own research before making any investment decisions. and a reminder that you can get in touch with us at any time.
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Okay, we are back with John Kernan from TD Cowen. Another question for you. Someone wants to know what you think of Columbia.
>> This brand flies under the radar at times. The stock is heavily owned by family. It's a $5 billion market And only about 50% of the flow is probably traded because the rest resides with the family and it's a brand that operates at an entry-level price point in outerwear and a bunch of their parol footwear. It's been under more competitive competition recently. The valuation has contracted pretty meaningfully from our was five years ago. They pay a healthy dividend and we think the brand occupies an interesting space in the marketplace, that entry-level price point. But again, there's a lot of competition. Their margin structure has been under pressure. They haven't quite figured out footwear. That's made us a little bit more cautious on Columbia.
>> Going forward, we do need to see from the name that would make you perhaps a little more interested in it?
>> Yeah, I think you have to see more stable topline growth, better inventory management and control of their operating margin which has seen a lot of volatility the last 3 to 5 years so I think you would have to see gross to think that the valuation was really attractive here. The brand durability, I think Columbia has been around a long time, they've been innovating in those entry-level price points for outerwear in men's and ladies apparel and footwear for a long time but I think it's a more competitive marketplace than it has been in the past and that gives us some pause.
If we thought there was a pathway towards higher operating margin, gross margin, going forward, and that could change her opinion for sure. I just don't see that on the horizon.
>> How to European sports brands look?
>> Adidas has been in a bit of a renaissance globally and in the United States.
Back in late 2022, the company hired a CEO and he was the CEO of Houma at the time.
He's done a phenomenal job fixing the culture internally at Adidas. I think he's done a great job of fixing the go to market strategy. We are seeing a lot of innovation out of Adidas recently. We are also seeing their retro product, the stance miss, the Sambo's really resonate in the marketplace, they are putting new colourways and a lot of excitements into the market place. It's putting a lot of pressure on Nike. They go neck and neck and a lot of channels in right now Adidas is the one resonating more, particularly in Europe but also in the US. So things are looking up for Adidas.
>> When I was young, that was the play, you're either Nikes or Adidas. There was no other choice if you wanted to be cool.
>> Puma is theretoo. They are very wholesale channel driven. They do not operate a lot of stores and their e-commerce platform is not that big.
That has put pressure on them.
It's a competitive market.
Losing their CEO to Adidas has hurt their competitiveness in the marketplace but it's a very cheap… The valuation has been discounted pretty significantly and we've been somewhat cautious on the direction of their growth.
>> Interesting stuff. We are out of time for questions. Before I let you go, it's gonna be a significant fall, when we get out of the summer, perhaps a rate cut from the Fed, we definitely have an election coming. What should people be thinking about if they are thinking about the retail space?
>> We are excited for the wrapup of back-to-school season. We have seen some real winners in terms of trend and value that they are providing. I think the holiday season will be a little bit better. You will see some growth. I think last year the holiday surprised a lot of folks to the upside and I think the consumer is in better shape. We would like to see animal spirits improve a bit. We think that can happen. As we get through this lowering of interest rates and this election cycle, I think things will be fine for the consumer broadly. There will be pockets of strength and weakness. It's certainly not a by everything type of environment in the consumer discretionary space but there certainly some things to be excited about. There always are. There are always companies, brands resonating, those delivering phenomenal value and scaling so I think there's a lot to be excited about for retail into the holidays and into 2025.
>> I enjoyed the conversation in your insights. Hopefully we can do it again sometime.
>> Thank you.
>> Our thanks to John Kernan, managing director for retail and consumer brands at TD Cowen. TD Cowen covers Columbia, Houma and Adidas, and for more information, a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions. if we did not have time to get your questions today, we will aim to get them into future shows. Stay tuned for tomorrow's show. Evan Chen, associate or portly research at TD Asset Management will be our guest. He wants to take your questions about technology stocks. You can get a head start with those questions.
Just email MoneyTalkLive@TD.com. That's all the time we have for today. Thanks for watching. We'll see you tomorrow.
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