Transcript Notes: October 2022
Dominos Pizza Group — August 2, 2022
Dominos Pizza Group (Dominos’ Master Franchise in UK/Ireland) has a massive market share advantage in the UK.
We have also grown our share of the UK pizza market from 42% to 48% and you can see from the chart on the right, that our share is significantly more than our nearest pizza competitor.
Urban market hotel average daily rates are above 2019 levels and occupancy is increasing rapidly.
The strongest recovery in the quarter was in urban markets where our hotels saw an encouraging increase in demand. Occupancy for our urban hotels averaged 64% for the quarter or a 25% point increase from the first quarter on a pro forma basis and ADR came in 24% ahead of Q1 and slightly ahead of the second quarter of 2019.
Park is selling hotels at 13x and using the proceeds to buy back stock at 10x.
Overall, hotel sales were executed at or near 2019 valuations with transaction multiples slightly above 13x on average, versus the 10x implied multiple on the $218 million of stock buybacks we executed year-to-date. And despite recent choppiness in the debt markets, interest in hotel real estate remains high. Accordingly, we expect to sell another $300 million to $400 million of assets to reduce leverage and reinvest back in our portfolio.
They should be careful not to use too much liquidity on buybacks, as debt markets are very tight and the business has a few large looming maturities at the end of 2023.
We have a lot of optionality. We could, yes, in theory, sell one or both assets. Again, getting debt right now in the near term, given that the debt markets are very choppy would be a very difficult execution in 3 to 6 months.
Huntington Ingalls — August 4, 2022
Huntington Ingalls is positioned to pay off most of its debt within the next two years.
We'll continue to go do that in'22, in '23 we pay down the 2-year bond, the term loan gets paid off in completion in Q3 too…there that you can see that we'll follow our capital allocation policy that we have. We'll continue to keep the yard up and running. We don't see any holes in the portfolio from an M&A perspective. And barring that there's nothing ultra attractive in that time frame. We'll continue to provide all excess free cash flow back to the shareholders.
That will allow it to return virtually 100% of free cash flow to shareholders going forward
we are reaffirming our capital allocation priorities and we are committing today to return substantially all free cash flow after planned debt repayment to shareholders through 2024. This is a significant commitment which should result in increased share repurchases, particularly in 2024 after we reached our desired debt level.
Free cash flow should ramp from $300M to $900M by 2024.
Restaurant Brand International — August 4, 2022
Restaurant Brands International (QSR) is a royalty business with pricing power that is keeping prices up with inflation.
we work with the franchisees to ensure that they do the best they can to price in the best way possible to ensure that we don't get too far ahead of the consumer that we're mindful of traffic and flow through of these price increases, but that we're also mindful of the impact on the P&L. So that's the broad general approach to it, which we've shared in the past. We tend to stay in line with CPI. There's -- in North America, there's a gap in CPI between U.S. and Canada of about 200 basis points. And our pricing has been roughly in line with CPI.
Dollar General — September 7, 2022
Inflation has slowed Dollar General’s customers down. DG’s core customer makes about $40,000 per year.
Now in saying that, we've seen unprecedented amount of inflation, both product and fuel inflation, that has slowed her down quite a bit. I would say prior to seeing the heavy inflation that's come in, she was doing pretty good because not only was she working 40 hours a week, our core consumer, she was making about $1 more an hour, and she still is, $1 more an hour than she did a year ago.
So we're seeing her shop much more intentionally, much closer to need… She comes more often, and she buys less on each occasion.
DG continues to see ample to expand its store footprint in the US, via in-filling, and in Mexico. Also by expanding p0pshelf.
We've talked about 17,000 new store opportunities domestically in our space. If you rewind the clock back to 2013, we were talking about 10,000. So even though we've been opening about 1,000 stores a year, we've found new opportunities faster than we've exhausted those.
It really speaks to, I think, 3 things:
One, just the broadening appeal of the brand with the initiatives that still fill-in trip, but a fuller fill-in trip and broadening the appeal.
Secondly, the nature of the shop. It is still a fill-in trip. Folks shop us within about a 5 square mile radius, so it provides a tremendous amount of fill-in opportunities where other retailers don't have that luxury. And we get some of our best returns where we'll put a store in between Dollar General 8 miles 1 direction, 9 miles the other. We'll get outsized returns even above the 20% to 22% after-tax IRR that we target, even burdened with cannibalization.
And the last piece I'll mention is format innovation. We're really excited about what we've done with different-sized boxes, mixing up the assortment. DGX got us into real urban vertical living workplaces, then the latest pOpshelf added 3,000 new unit opportunity over time because it serves a different geography. It goes places where Dollar General doesn't. That's in the suburbs. It serves a different higher income customer. It's a different occasion. And so we feel fantastic about the 17,000 new unit opportunities that we're seeing.
DG also sees opportunities in adjacent services.
Many of our customers are in food deserts. They're in health care deserts, too.
Tractor Supply — September 7, 2022
Tractor Supply has an incredible track record.
30 straight years. Hopefully, this will be the 31 straight years of positive revenue growth. We have got 30 straight years of positive comp transactions, 29 of the last 30 years of positive comp growth with only 1 year, 2008, being a negative 1 comp. So this is a business that's been very consistent, very resilient, very predictable throughout all different types of economic environments.
One reason is that Tractor Supply sells essentials.
In many ways, we're the grocery store for our customer. We have 20% to 25% market share in animal feed. You have to continue to feed your animals. We're a top five player in pet food. You had to continue to feed your pets. And we have many other businesses that are very similar to those, so demand-driven, needs-based.
China is the first country in the world where more commerce is happening online than offline.
The other thing I think that is just important to just say out loud is 75% of retail is still being done in the physical world. And that is obviously shifting. Now you have countries like China, which is the first country on the planet that actually eclipse the 50% mark in terms of commerce happening more digitally than in person.
Floor and Decor — September 8, 2022
FND expects to benefit as US housing stock wears out.
There's 128 million housing units in the United States, 80% of those housing units are over 20 years old. And we're adding anywhere from 1.2 to 1.6 new households every year, both through birth rates and migration into the country. So you're going to have an environment. We just don't have enough homes for America. And I think that's going to continue to drive up value and stuff wears out, right? If your home is 20 or 30 years old, which again, 80% of Americans homes are over 20 years old, things start to wear out. You've got to get new windows, you've got to paint, you got to get new flooring. And so I think this is an incredibly good industry for those 2 factors.
Ally is cannibalizing itself.
We've bought back 35% of our shares since the inception of our buyback program, and we 4x-ed the dividend over the course of 7 years, including a 20% increase in our dividend this year.
Management thinks the business is solid, but the market’s valuation suggests it’s skeptical.
Now we're about 85% deposit-funded. We have a very mature deposit-gathering engine. Quite frankly, we've managed risk very carefully through time. We've continued to manage to about a 1% NCO rate on a consolidated basis. And keep in mind, our balance sheet is about 95% secured through liquid, high-quality assets.
On the liability side, look, we have run off over $24 billion of high-cost debt and a 5% coupon. That is not coming back.
AutoZone sees inflation stabilizing.
We believe inflation is stabilizing. We are seeing transportation costs begin to moderate after reaching historic levels, but we are not seeing product cost deflation yet nor are we seeing any signs that labor wage growth is slowing.
AutoZone continues its multi-decade streak of stock buybacks.
The strong earnings, balance sheet and powerful free cash we generated this year has allowed us to buy back over 10% of the shares outstanding since the beginning of the year. We have bought back over 90% of the shares outstanding of our stock since our buyback inception in 1998.
Bank of America — September 19, 2022
If we are in recession someone forgot to tell Bank of America’s customers.
So first, on the consumer side, we tend to look at 2 or 3 different things.
The first thing we look at is credit card and debit card spend to see how is the consumer doing. We've pretty frequently at earnings and during updates like this, mentioned the fact that the U.S. consumer is still spending double digit more than last year, which was a record. So that's number one. And that continues through September, including the busy Labor Day holiday.
Number two, we look at deposit balances, where we've talked about the fact that more or less every cohort has multiples of deposits at the bank than they had pre-pandemic. That's particularly true for the very low end of consumer. And the question that we get occasionally is are you seeing that begin to flow out? The answer is no. Deposit balances have remained very steady at record levels. So the consumer is spending more, has more in the bank, and the consumer has more borrowing capacity.
Nike is going to be having sales.
In September, month-to-date retail sales are up double digits versus the prior year, following a strong back-to-school season. However, our North America inventory grew 65% versus the prior year, with in-transit inventory growing approximately 85%. This reflects the combination of late delivery for the past 2 seasons plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia.
As a result, we are taking decisive action to clear excess inventory, focusing on specific pockets of seasonally late products, predominantly in apparel.
Salesforce — September 21, 2022
The strong dollar is causing major headaches for multinationals, but it won’t last forever.
If you talk to any multinational CEO right now, they'll talk about two things: foreign exchange, which is a total nightmare right now with the strength of the dollar; and they'll talk about the complexity of compliance globally.
Now foreign exchange has taken about $2 billion off and the question I had before looking at this. Foreign exchange is down again today. I mean, we -- I never would have dreamed a year ago that I would be standing here, and the euro would be below parity. I mean it was heard of, that the yen would be at 1.44. Now at some point, that's got to turn.
American Express — October 21, 2022
American Express has not seen consumers slow down yet.
In the quarter, total T&E spending was up 57% from a year earlier on an FX-adjusted basis driven by the continued strong demand from consumers and small business customers. Particularly noteworthy is the strength we're seeing in T&E spending in our international markets, which exceeded pre-pandemic levels for the first time this quarter on an FX-adjusted basis. Business travel also continued to recover and overall activity remained strong through September.
Spending across categories, cohorts, and geographies remains incredibly strong.
We're confident. Look, the spending speaks for itself. I mean just look at some of these numbers. You've got goods and services up 16%. Our U.S. consumer is up 22%. Millennial spending is up 39%. Our T&E spending is up 57%. International spending is 37%. We haven't seen any change. And you can look at this quarter-over-quarter. And the reality is that last quarter was a record level quarter in terms of spending, and this is like, I don't know, $1 billion behind or something like that. But if you look at year-over-year growth, we're not seeing any changes in consumer spending behavior at all. And look, that's not to say that things may not change, but I can only look at what I'm seeing right now.
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