Shares of Walmart (WMT +0.82%) fall despite strong third-quarter results and raised guidance. Home Depot (HD +0.48%) hits a new all-time high after a monster third quarter fueled by higher average tickets. Motley Fool analyst Bill Mann analyzes those stories and weighs in on the Green Bay Packers selling $90 million worth of stock in the team.
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This video was recorded on Nov. 16, 2021.
Chris Hill: It's Tuesday, November 16th. Welcome to Market Foolery. I'm Chris Hill. With me today, the one and only Bill Mann. Good to see you.
Bill Mann: Chris, it's delightful to be with you. You doing all right?
Chris Hill: I'm doing all right. We've got sports news for investors or it might be investing news for sports fans, I'm not sure which. But we're going to start with some big retail earnings. Walmart's third quarter profits and revenue came in higher-than-expected. Same-store sales were higher than expected. They raised guidance. You would think the stock would be shooting up, but it's Walmart. That's not the case.
Bill Mann: It's not a shooting-up stock, is it?
Chris Hill: It's not. But it's interesting because there are some people who're dinging Walmart on their gross margins. I suppose I understand that, if you're just going to judge them on their gross margins aren't as lovely as they could be, I get that, but to me, Bill, the value proposition for customers is still very much at the heart and center of what Walmart is doing.
Bill Mann: Exactly. Think about this. Think about the size of the Walmart revenue base, and it was up 9.2 percent. That is massive. That means that Walmart is taking market share. The other thing that they said that was really, really interesting in an environment in which we are all worried about supply chains, one of the first things that they said was? "Hey, our shelves are stocked. We are ready for the holiday season." Whichever holiday you're talking about. I do hope they were talking about Thanksgiving because you're not supposed to talk about Christmas before Thanksgiving goes by. But they did raise prices. Their traffic was up 5.7 percent over the same quarter last year, and spending was up 3.3 percent. This is Walmart we're talking about. This is not a company that likes to go to its prices in order to make up for what it considers to be short-term things. They don't like to raise prices. This is in their DNA. For some people to come out and say, "Hey, your margins were a little lower." I almost expected Walmart to say, "Have you looked around? Have you paid attention to the fact that you can't get stuff, that other stuff's much more expensive, that labor costs, and by the way, we employ a lot of people, are way up?" It's a crazy thing to ding Walmart for while they are doing their best to keep prices in line. But still a 3.3 percent rise in individual spending per trip.
Chris Hill: You're right. They are raising some prices, but they're not raising prices to the degree that they could and certainly in the way that some of us would like them to.
Bill Mann: Never have.
Chris Hill: I was watching Doug McMillon, the CEO, being interviewed this morning. He was reminding me of Jim Sinegal in the way he was talking about, how Walmart views its customers, how they want to provide value for their customers and they're just not going to raise prices to such a degree that it hurts their customers just so it will make the stocks of Wall Street roll up and down.
Bill Mann: [laughs] He was essentially telling the analysts, "Can you do us a favor and get out of New York for a day or two and go look around? Go to a place like Peoria, Illinois and walk into the Walmart and tell me what you see. Tell me what you see." They are not raising prices to the extent that they could and that is a feature of Walmart and not a bug, and they're doing it in an environment in which everything is still a little bit crazy post-pandemic. They did not raise prices for most of their goods because they didn't want to. I think it's such an important thing and I'm so glad that you brought up Jim Sinegal because for years when he did the Costco earnings reports, every single time, some analyst would ask him that question and you could feel Jim Sinegal go, "Okay. Maybe you're new, but that's not how we do things. You're right, that's exactly the same energy that Macmillan gave."
Chris Hill: Last thing before we move on. How should investors think about the international part of Walmart's business? What should people focus on there?
Bill Mann: Both Walmart and Costco have shown that it's really somewhat more difficult than it would seem to move from country to country if they aren't contiguous. Walmart in Canada does very well against pretty good competition. Walmart in Mexico does amazingly. Walmart in Mexico, which actually also has its own publicly traded ticker, which they call Walmex, which I love, but it's Walmart of Mexico. Yeah, it is quite important for them. But they really never have looked to make quantum leaps going overseas, and I think that's been a strategy in the same way that forever, you couldn't find a Walmart in Manhattan. They knew their playbook and their playbook included not pushing their supply chains in ways that made them very, very hard to manage.
Chris Hill: Same-store sales for Home Depot in the third quarter were up six percent, which doesn't seem like a lot, but it was nearly triple what was expected. Home Depot's profits and revenue were higher than expected and it was not close. This was not one of those beat-by-a-penny kind of quarters.
Bill Mann: [laughs] They beat by a pound and a half. 9.8 percent jump in sales. Same-store sales were up six percent. Now, imagine, I always want to be a little bit careful, because when I say last year, I generally, I'm still speaking about 2019 and 2020 was just the troubles. Personally, when I think about last year, I ignore 2020. When we talk about comparables, thinking about 2020, you have to be a little bit careful too, because 2020 was so weird. There were lots of stores that were closed for certain periods of time. Even if they were open, nobody was going. But guess what was happening by this time in 2020? People were doing projects at their houses. That was happening. For Home Depot to beat the third quarter of 2020 by 9.8 percent in 2021, it's astounding to me. It's absolutely astounding. Yes, there's some inflation that's built into it, but also Home Depot is not Walmart. They are taking a little more pricing advantage. They are much more willing to go to the board, if you will than a Walmart does. Their average ticket, which is a fancy-pants way of saying, how much did each person spend was up almost 13 percent.
Chris Hill: That's the most interesting part of this quarter for me is that what's driving the same-store sales growth is not more traffic. Traffic was actually down. It was the people who were going there were spending much more money.
Bill Mann: Just walking around Home Depot with their wallets open saying, "Just take what you need. Can I have my stuff?" Right now, I think atleast partially like both of these companies are so interesting to talk about because both of them solve part of the supply chain issues by leasing their own ships to make sure that they were getting materials. I think that there is something to be said. I don't know, Chris, if this is a good thing or not, but it's a thing that the biggest companies are not suffering in the same way that the smaller companies are from supply chain disruptions. Home Depot, I think you could probably say, I mean, I did this. Let's do some anecdata. When I went into Home Depot to buy a light bulb, I bought 12 of them. [laughs] I didn't need 11 of them, but I did, because of that very thing. Great quarter for them. You need to be a little bit careful because obviously, the supply chain impacts people and companies in various ways. Some people may be doing the same things that I'm doing, like, "Okay, I've got a room full of toilet paper, again, I've got a room full of cleaning supplies, whatever it is, I need to make it through the winter if the supply chains get worse." But still, this was a staggering quarter for Home Depot.
Chris Hill: Are you surprised that Home Depot is basically, now, from the standpoint of market cap, the same size as Walmart? Because I can look at that and see that it is real, and part of me still has trouble wrapping my head around it. [laughs]
Bill Mann: Is that doesn't make any sense. We all think of Home Depot with some level of they are the bog. They are a massive company. We don't think of Home Depot as being the same. Part of that has to do with the fact, again, going back to what we were talking about earlier with Walmart, Home Depot was much more capital efficient than Walmart is. They make bigger margins on the average thing that you're walking out with than it happens at a Walmart. Still, Walmart is the biggest retailer in the world. It does not make sense on a lot of levels. Again, because if Walmart really wanted to, they could go to their boards instantly. They could breakout the price gun instantly and make substantially more money, they choose not to.
Chris Hill: A couple of quick notes before we get to our final story. The Motley Fool's Annual Meeting starts on Wednesday and runs through Friday. Yes, we're a private company.
Bill Mann: Not solid.
Chris Hill: That solid.
Bill Mann: Not the whole time. That would be a heck of a meeting.
Chris Hill: Not the whole time but [laughs] it's three days worth of an annual meeting.
Bill Mann: Sixty- six-hour consecutive meeting would be a lot.
Chris Hill: That would be a lot which is prelude demising. This is a shorter than average week for Market Foolery, but we'll be back on Monday. Our guest on Motley Fool Money this week, Nell Minow is scheduled to be our guest on Motley Fool Money this week. Check that out on Friday. This morning, the Green Bay Packers began selling $90 million worth of stock in the team. Three hundred thousand shares are available at $300 a pop. This is not an IPO. The stock cannot be traded in the open market and the team is going to use the proceeds to improve Lambeau Field. Is there a packer fan in your life you want to buy a present for? Because that seems like the move here because we'll get into publicly traded sports teams in a minute. But this fascinates me. This to me is a testament to what fans are willing to do because again, there is no value to this stock other than pride of ownership.
Bill Mann: Not only that. They're called common stock, but they have none of the characteristics of a full-profit common stock. There is no equity interest, there's no dividends. I wrote this down from the memorandum and it says it is virtually impossible for anyone to realize a profit on the purchase of this common stock or to even recoup the amount initially paid. They're telling you upfront that this is a loser of an investment.
Chris Hill: Thank you for making a donation to the charitable trust of the Green Bay Packers.
Bill Mann: That's exactly what it is. But you get a piece of paper. Like for sports teams, that's enough. As you said, there are some publicly traded sports teams, there are a lot in Europe. Manchester United is publicly traded, Fenerbahce, which is the largest soccer club in IRF Sports Club in Turkey, publicly traded. There are a number of them. The old arena league team, the Orlando Renegades was traded on the Nasdaq. But the Green Bay Packers are entirely unique because they are a publicly owned, not-for-profit company. Nobody's allowed to own more than 200,000 shares. There are 360,000 shareholders. But this structure, the fact that it's a non-profit corporation, is what's allowed the Packers to remain in what is this out-of-the-way, freezing, cold, tiny Wisconsin town. We forget how remarkable that is. It's like oh, Green Bay, it's a huge club. It's a tiny town. If the Green Bay Packers did not exist, most people under no circumstances would say, oh yeah, Green Bay, that's in Wisconsin. They wouldn't know.
Chris Hill: I get an angry email from Packer fans.
Bill Mann: I know. I am sorry, no. Look, even as a Vikings fan, I respect the Packers 100 percent. It is amazing franchise. It is an amazing club. It's fans are amazing. I'm not just saying this to keep people from writing, would love to hear from all of you. Even just to make fun of me for what I just admitted about liking the Vikings, it's fine. Look, I'm used to it by now. We lose a lot in very painful ways. But the Packers would not be in Green Bay, Wisconsin were it not for the structure. The amazing thing to me, Chris, is that the NFL does not allow companies to own it's franchises, they have to be owned by individuals or groups of individuals. The Green Bay Packers, they are entirely separate. They are the only club in the NFL that's allowed to have this type of structure. I'm completely here for it. It's just not a good investment if your returns are of the financial type.
Chris Hill: Which leads me to the final question. Are you surprised that for all of the popularity of professional sports and all of the money that flows through professional sports, that publicly traded teams like Manchester United or even Madison Square Garden, which owns the Knicks and the Rangers, they have not proven to be great investments themselves either in the sense of rewarding shareholders.
Bill Mann: Right, exactly. If you think about the promise of being an owner of a club or a team, the economics, the cash flow that you generate, which is generally what stocks are valued on, is almost always terrible. It's terrible because the club that makes a huge profit is not investing in players. Your first, second, and third principle as an owner of a club is to put out a winning team. That's what you're supposed to do, not make a profit, it's to put out a winning team, and that means spending money. Where clubs make money is in the increase in the value of the franchise. That's it. They're not great investments. A lot of people put them into their portfolios because they are fans of certain clubs. I have no problem with that, but just call it for what it is.
Chris Hill: Bill Mann, great talking to you. Thanks for being here.
Bill Mann: Thanks Chris.
Chris Hill: As always, people on the program may have interest in the stocks they talked about on the Motley Fool may have formal recommendations for or against. Don't buy yourselves stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. See you on Monday.
