Retail Stocks: Does The Party Continue In Costco and Walmart Stock?

Benzinga

Ryan Craver, Founder & CEO of Commerce Canal joined Benzinga's Premarket Prep team to discuss retail stocks.

Transcript

00:00Do you think the CPI data is real?

00:02Ryan, I'm going to ask you, do you think they account for everything in there and they've

00:05got it all perfect and it's really, inflation is really only 2.8% right now.

00:09Do you really feel like it's 2.8%?

00:12Absolutely not.

00:14Especially within food, food especially, it's rampant, rampant with shrinkflation, rampant.

00:23Shrinkflation's out of hand.

00:24They've now stopped raising prices, they just make the products smaller.

00:28That's where they're doing it.

00:29Because they know the CPI doesn't account for it too.

00:31They don't do it right.

00:32I totally agree with you and I think the one major benefactor, well two, is Walmart and

00:40Costco.

00:41So they are the ones that are seeing a large percentage of growth because food continues

00:47to grow in terms of price and shrinkflation.

00:50So they're making more yield on a smaller package and then they're also increasing the

00:57frequency with which they purchase it.

00:58So everyone talks about trading down but it's trading down only in size, it's not trading

01:04down an actual brand within the food sector.

01:06So does this party in Costco, Walmart continue because we've got all-time highs at Walmart.

01:12Costco is basically on all-time highs actually due to reports.

01:16Costco's reporting tomorrow night.

01:18So is it tomorrow night or tonight?

01:20Actually it's tonight.

01:21Costco reports tonight.

01:23What do you think first off ahead of the Costco report?

01:26We'll throw you under the bus here.

01:27Try to predict the Costco report for us Ryan.

01:30I think Costco is going to continue to show stable numbers.

01:36Now remember Costco is held up by that big moat of the membership base that is 90 plus

01:43percent renewal rates.

01:46So I think to short term trade it, I believe it's basing again.

01:51Keep in mind the same every time we've spoken about it, trades at a premium, right?

01:57Like it's at a very high premium.

02:00If you're going to hold Costco longer term, I think it's definitely a buy but longer term,

02:06I think just trading it based on earnings wouldn't make a lot of sense.

02:10The great thing about Costco right now is their international story continues to perform.

02:16They're definitely saturated in the US in terms of store base, yet they still are growing

02:21their comp sales, but the international play is still going.

02:25Where are they growing internationally?

02:27So for the most part, it's crazy, but they have an extreme success story in China.

02:34They're also picking up a lot of market share within Australia.

02:40Australia is a small market relative to the rest of these markets, but they're doing really

02:43well.

02:44I think they're going to perform really well in the UK.

02:48In Canada, arguably them and Amazon dominant, continue to steal market share from Walmart.

02:55So their model works.

02:58It's not going to work in Paris.

03:01I'll tell you why.

03:02Because like all the apartments and everything is so small.

03:07Like when we go to Costco, you buy all this stuff and you need to store it.

03:12I mean, it's just those small places, but Costco due to report.

03:17Just before we get more into individual stocks, we've been talking about the consumer and

03:21Dennis has said, hey, we've accepted inflation and whatever rate it is, if the smaller packages,

03:28I mean, you deal directly with the people that sell to the consumer.

03:32What I mean, are they just like, hey, let's just keep the ads out.

03:35The money's rolling in here.

03:37Or is there any, any caution in, in like the ad spend?

03:42There's definitely some caution in the ad spend.

03:44So we have seen a number of brands pull back on the ads that they're pushing.

03:51With that said, if they are pulling, if they aren't pulling back, they're moving a lot

03:57of it over to Amazon and meta.

03:59So they're pulling from Google is generally what we've seen in terms of top line weakness.

04:06We have seen it in certain pockets.

04:09Home continues to be relatively slow.

04:12Apparel is not slow on a unit basis, but a lot of people are trading down and playing

04:17in brands that are a little cheaper.

04:20So the branded plays are having a little bit of difficulty, but food continues to be incredibly

04:26strong.

04:27We see the restaurant services still stealing share of wallet from, from the tangible goods.

04:38What about the dollar stores?

04:41Dollars, dollar stores, dollar stores, pretty rough department stores, pretty rough.

04:48If we look across the major retailers, the ones that I still see pretty, pretty good

04:54Outlook, Costco, Walmart, I think Amazon is going to be tough on the top line, but

05:02I was just at their Seattle summit last week where there was thousands of sellers.

05:07Their services play is just amazing right now.

05:09So they're trying to take more and more share and supply chain services from some of the

05:16warehouses and things like that doing really, really well.

05:20I think if we start to look outside of those top three, there are a couple of names that

05:26it's going to be interesting to see how their earnings come out.

05:29TJ Maxx, Ross, Burlington, Ollie's, all those value plays, but I wouldn't steer clear of

05:36anything in department store and in dollar store.

05:40There's such a separation and there always has been, maybe, you know, with off price,

05:45like you've talked about this for years coming on our show, Ryan, but I just look at like

05:49all the department stores of yours talk like Kohl's and Nordstrom and Macy's and all those

05:53stocks are in the gutter.

05:55Then you have Dillard's, which just, you know, always defies gravity to a certain extent.

05:58But like you said, TJ Maxx right up near all time highs, Burlington still doing well over

06:03the course of the last year, off price retailers still doing well.

06:07That trend just continue?

06:09It does continue.

06:10So I don't want to simplify retail, but it's basically once you start growing your store

06:17account, you no longer have the growth story.

06:19Department stores have continued to cut and cut and cut in terms of their store base.

06:26I think we're even starting to see some difficulty in names that have slowed their store

06:30account. So like the five below the world, but the TJ Maxx's, the Ross's, the Burlington's,

06:35they continue to open new stores and continue to enrich the store base that they have now.

06:41A lot of what people have been scared about, about them in the past was that they have

06:46no e-commerce story, right?

06:47None of them are selling on e-commerce, but we can see that off price is incredibly strong.

06:53People are going to stores and are buying.

06:57There's a few turnaround stories that are pretty interesting, like the Abercrombie's of

07:03the world. But I don't see anything within the department stores or dollar stores that

07:09looks compelling.

07:10What about Nike, Ryan?

07:12Oh, oh, you know, so I've been looking to bottom feed on Nike, Starbucks and Lulu.

07:21Those are the three, those are the three like household retail names that have been

07:25beaten down that I've also been looking.

07:27I mean, Starbucks, not Starbucks.

07:30Well, Starbucks got beaten down.

07:32Starbucks got slammed and then they got the new Chipotle CEO and it popped.

07:36So I've no longer thought to pull in a position.

07:41I think I think the difficulty with Nike is right now they have zero growth story, right?

07:49They got on that's kicking their ass.

07:51They got a low, which is now pulling into shoes.

07:56They've got Hoka, which continues to perform relatively well.

08:00They've got no secondary brands like they did in the past to try and propel them

08:05forward. So I'm looking at it, but I was looking at it when it was down in the

08:10seventies. Now that it's popped with the optimism of the new CEO, I think it's

08:16difficult to take a position now until he comes out with kind of his story.

08:21I think they cut too much by, you know, pulling out of all that wholesale.

08:27So I just don't I don't think the story is there just yet.

08:32Lululemon, to me, still looks interesting despite the competitive set.

08:38Is there a turnaround story here?

08:41There's a turnaround story if they can push international.

08:46International is just so small as a percentage of the overall business today.

08:50But I think that that's what we'll start to see the CEO lean into as long as he can

08:56make a compelling statement of how he can grow that business.

09:01I'm continuing to look at it.

09:02It hasn't seen any pop yet.

09:05So I think that one's really interesting.

09:07The one other one, and this one is always controversial when I bring it up, is

09:11Target. I still think that Target CEO, Brian Cornell, I know he's loved by Wall

09:17Street. I think there has to be an activist play at some point that propels it

09:24forward to say that, you know, they need turnover in the C-suite.

09:30I just think it's time.

09:32I think someone else new needs to come in and, you know, whether it's an Elliott

09:35management or someone like that, to come in and say, look, we need some sort of

09:42activism on that stock.

09:44I think there's probably some plays in consumer that look interesting.

09:50So I don't know if we've ever talked about Celsius Holdings.

09:55Oh, let's go there.

09:57Let's go there.

09:59So CELH, from our market share data that we're pulling, they are definitely

10:05losing share on Amazon.

10:08They're fighting hard against Red Bull.

10:11They're fighting hard against Monster.

10:15Yes, they got the number one spot, but they're clearly having difficulty with Amazon.

10:20Amazon's one of their largest retailers that they're selling now.

10:24So I think Costco numbers should be interesting tonight to understand how Celsius

10:30might play. I've been looking at that one since it's dropped, but clearly they haven't

10:34shown any base.

10:35I think there's still some more downside, but eventually maybe look at that one.

10:42They want to know Shopify in the chat, too, because you've talked Shopify on this show

10:47positively a lot in the past.

10:48Are you still positive on Shopify?

10:50Still positive on Shopify.

10:52I mean, if you want to do any direct-to-consumer business, dot-com business, it's the

10:57name. I think that Magento, which is owned by Adobe, is still, you know, it's not a

11:04play. It's not gaining any significant market share.

11:08Shopify continues to do pretty well.

11:10Longer term hold.

11:13Definitely a longer term hold.

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