Mega-Brands: Investing in Mega Trends Through Mega Brands

Today I chatted with a dedicated Cannabis, Consumer and Consumer Tech investor, Paul Cerro from Cedar Grove Capital.

I met Paul on Twitter ( @paulcerro )and really enjoy his thoughts and reading his notes on substack ( https://cedargrovecapital.substack.com )

We talked about the Cannabis industry and the absolutely huge potential for outsized gains for patient investors willing to hold through the VOL until federal regulation gets approved. It's only a matter of time, the more states approve it, the more likely a federal mandate will happen. A huge amount of investment capital will flow to this industry, it's just a matter of when. We talked about the U.S. companies being the best long term opportunities. Names to research include: Greenthumb, Truleaf, Curaleaf.

We then moved into the consumer brands and talked alot about Petco, WOOF, and how its very misunderstood and ignored by investors. I suspect they need to spend more time on the actual brand and why consumers have to spend that extra time getting to their stores versus buying all their pet supplies wherever they are shopping at the moment.  We then talked about Exponential Fitness, XPOS. I didn't know much about this brand because its under my market cap threshold at $800m but I absolutely know some of the sub-brands they own like Yoga6 and Pure Barre.

I really enjoyed our chat and Paul is a super smart investor. Check out his substack research, I'm confident you will love it!

If you want more information on the brands portfolios and podcasts: https://www.globalbrandsmatter.com/podcasts

The Dynamic brands strategy info can be found here: https://www.globalbrandsmatter.com/dynamic-portfolio

I spent a week going through Under Armour's website, its app, the quarterly reports and annual reports to try and identify what's wrong with the company and it's stock. Overall, UAA seems to be following the typical trajectory of a brand that becomes irrelevant over time.  One of the hallmarks of mostly irrelevant brands and underperforming stocks is having lower margins than peers while still having more revenue than the current market cap of the business. The brand just gets less interesting to people each year. I've seen that happening in UAA for many years now. Consumer stocks that have good pricing power, high brand love, and strong repeat business tend to have stronger returns. Revenue growth is key, smart innovation spending and marketing is key, strong overall operating metrics are key. The most important part of longevity with consumers though, is maintaining or increasing your brand relevancy. Staying relevant needs to happen for companies to continue to thrive. Companies don't always need to sell premium products to stay relevant, witness Costco and Target, but they need to offer a better mousetrap, a better customer experience, and to remove as much friction as possible so consumers can act over and over with buying. That game becomes a high sales, low margin and high recurring revenue business. Generally, that's not ideal in the apparel and footwear business, this is not the grocery and general merchandise business. In the athleisure business, "brand heat" or "brand coolness" is very important. Athleisure as a lifestyle and mentality offers companies enormous revenue and free cash flow opportunities but designs have to be cool and sexy and functional, stores have to be aesthetically pleasing, with friendly and knowledgable staff, and there has to be a buzz about the brand. The digital business needs to engage people and serve people. The data needs to be harnessed for continued innovation. Data on your browsers and customers is the X-factor that can and should drive future engagement. Without all of these things combined, you are just hoping someone transacts with you without the ability to keep them engaging. That drives low multiples permanently.  Your buzz can't be that the brand is super cheap and serving a basic consumer staples purpose. Brands that fall into that category tend to be persistent underperforms and ultimately become completely irrelevant.

Under Armour has made huge strides to get back on track from an operational perspective, there's more to do but I'm very pleased at their progress. What they need to focus on next is a complete brand reset. Maybe that's creating a new premium brand, maybe it's making a small acquisition, or maybe it's leaning deeper and more aggressive into the Project Rock brand but it has to happen quickly.  For now, UAA is a value stock without a clear catalyst. They have set the bar quite low from a future expectations perspective so it likely has some value around $8.15/share but to make the real comeback which I think can happen, it needs to become a much more relevant brand, make premium and differentiated products, cut the undifferentiated boring skews and spend on a smart branding strategy. They need to connect with people on a deeper psychological level, like they did in their early days. They need to be more than a perceived athletic apparel and footwear brand. They need to move into active lifestyle and street-wear. And most of all, they need to be the edgiest brand in the category. Loud, edgy, opinionated and serving every demographic because we believe what they believe. The Rock and his philosophies are a great first step, now we need a collective of motivators like the Rock, from sports to music to other pop culture categories. Let's find brand ambassadors around the world that stand together with a positive, motivational message to kids through older adults. That's the revolution I want to join. There's no reason UAA can't drive it!

I spent a week going through Under Armour's website, its app, the quarterly reports and annual reports to try and identify what's wrong with the company and it's stock. Overall, UAA seems to be following the typical trajectory of a brand that becomes irrelevant over time.  One of the hallmarks of mostly irrelevant brands and underperforming stocks is having lower margins than peers while still having more revenue than the current market cap of the business. The brand just gets less interesting to people each year. I've seen that happening in UAA for many years now. Consumer stocks that have good pricing power, high brand love, and strong repeat business tend to have stronger returns. Revenue growth is key, smart innovation spending and marketing is key, strong overall operating metrics are key. The most important part of longevity with consumers though, is maintaining or increasing your brand relevancy. Staying relevant needs to happen for companies to continue to thrive. Companies don't always need to sell premium products to stay relevant, witness Costco and Target, but they need to offer a better mousetrap, a better customer experience, and to remove as much friction as possible so consumers can act over and over with buying. That game becomes a high sales, low margin and high recurring revenue business. Generally, that's not ideal in the apparel and footwear business, this is not the grocery and general merchandise business. In the athleisure business, "brand heat" or "brand coolness" is very important. Athleisure as a lifestyle and mentality offers companies enormous revenue and free cash flow opportunities but designs have to be cool and sexy and functional, stores have to be aesthetically pleasing, with friendly and knowledgable staff, and there has to be a buzz about the brand. The digital business needs to engage people and serve people. The data needs to be harnessed for continued innovation. Data on your browsers and customers is the X-factor that can and should drive future engagement. Without all of these things combined, you are just hoping someone transacts with you without the ability to keep them engaging. That drives low multiples permanently.  Your buzz can't be that the brand is super cheap and serving a basic consumer staples purpose. Brands that fall into that category tend to be persistent underperforms and ultimately become completely irrelevant.

Under Armour has made huge strides to get back on track from an operational perspective, there's more to do but I'm very pleased at their progress. What they need to focus on next is a complete brand reset. Maybe that's creating a new premium brand, maybe it's making a small acquisition, or maybe it's leaning deeper and more aggressive into the Project Rock brand but it has to happen quickly.  For now, UAA is a value stock without a clear catalyst. They have set the bar quite low from a future expectations perspective so it likely has some value around $8.15/share but to make the real comeback which I think can happen, it needs to become a much more relevant brand, make premium and differentiated products, cut the undifferentiated boring skews and spend on a smart branding strategy. They need to connect with people on a deeper psychological level, like they did in their early days. They need to be more than a perceived athletic apparel and footwear brand. They need to move into active lifestyle and street-wear. And most of all, they need to be the edgiest brand in the category. Loud, edgy, opinionated and serving every demographic because we believe what they believe. The Rock and his philosophies are a great first step, now we need a collective of motivators like the Rock, from sports to music to other pop culture categories. Let's find brand ambassadors around the world that stand together with a positive, motivational message to kids through older adults. That's the revolution I want to join. There's no reason UAA can't drive it!

This chat is my all-time favorite conversation with the best consumer analyst in the industry. He's a top ranked analyst for a reason, he knows retail and the consumer better than anyone. Simeon started his career at Goldman and simply has better insights than most analysts. In my experience, not every analyst understands the power of the brand, sometimes the intangible asset of brand tells a different story than the excel spreadsheets. When combining the raw numbers with the brand relevancy analysis, and adding some technical & sentiment work, better entries and exits often happen.

We talked about the state of the consumer (don't bet against them), how inflation is affecting consumption trends, inventory issues short term, demand being pulled-forward, and which categories seem well positioned.  We talked at length about Under Armour, a new obsession of mine. We also talked about the discounters like TJX and Ross Stores. Other brands and categories discussed: Nike, Lulu, Deckers, footwear, apparel, omni-channel.

For more information on Simeon: https://www.linkedin.com/in/simeonsiegel/

https://capitalmarkets.bmo.com/en/our-bankers/simeon-siegel-cfa/

For more information about global brands investing: https://www.globalbrandsmatter.com

Simeon Siegel is a Managing Director and Senior Analyst at BMO Capital Markets specializing in Retail and E-commerce. Simeon started his career at Goldman Sachs and his since worked on the #1 ranked Retail franchise at JPMorgan and Nomura | Instinet.

Simeon has been named a Rising Star of Wall Street by Institutional Investor, a Rising Star of Equity Research by Business Insider, a Top Stock Picker by StarMine and a Top Earnings Estimator by Thomson Reuters and Refinitiv. He has worked on the Institutional Investor #1 ranked All America Research Team for Specialty Retail and the Wall Street Journal's "Best on the Street" list of top analysts. He is in constant dialogue with investors and C-Level Management across the industry, analyzing and advising on the ever-evolving retail landscape. He is a regular guest on CNBC and frequently quoted across the media including The Wall Street Journal, The New York Times, Women's Wear Daily, The Business of Fashion, Barron's and Bloomberg, among others.

Link to media disclosures at BMO:

https://researchglobal0.bmocapitalmarkets.com/public-disclosure/

It's nice to have a former guest, Sean Emory back on the podcast.

We talked about the macro and inflationary environment and when we might see a rate of change tailwind.

We also talk about the kinds of companies that should continue to perform well into the future and how disconnected the current businesses are from their stock prices. Eventually the actual business performance will drive these stocks which, given the drawdowns in many of these great businesses, should offer very robust recoveries once the market bottoms and macro stops driving the narrative.

We talked about Duolingo $DUOL $WIX $SHOP $SQ $FVRR $ZM

There will be an epic opportunity to buy so many of the emerging growth brands that have been left for dead, its only a matter of time.

You can find more information at linker.ee/avoryco

https://www.globalbrandsmatter.com

It's nice to have a former guest, Sean Avory back on the podcast.

We talked about the macro and inflationary environment and when we might see a rate of change tailwind.

We also talk about the kinds of companies that should continue to perform well into the future and how disconnected the current businesses are from their stock prices. Eventually the actual business performance will drive these stocks which, given the drawdowns in many of these great businesses, should offer very robust recoveries once the market bottoms and macro stops driving the narrative.

We talked about Duolingo $DUOL $WIX $SHOP $SQ $FVRR $ZM

There will be an epic opportunity to buy so many of the emerging growth brands that have been left for dead, its only a matter of time.

I discuss the market for the first half of 2022 and add a historical perspective from 1970, the last time markets had as bad a first 6 months. I talk about the inflation, rates and macro headwinds we face and add some color around how consumers and businesses are dealing with a slowdown and high inflation. I talk about the power of Brands and why they are very well positioned for the environment we are in, even if the market does not reflect this currently. I also discuss the top 10 holdings as of June 30, 2022. Thanks for listening!

Website: https://www.globalbrandsmatter.com

Today's conversation was one of my favorites. I have been a long-term follower of Mark Mahaney (@markmahaney on Twitter).

He's been covering tech and Internet stocks for 30+ years and has seen every cycle - good and bad. In periods like today, that's enormously valuable to investors.  We talked about his recent book release "Nothing But Net", my new favorite. 

Available on Amazon: https://www.amazon.com/Nothing-But-Net-Timeless-Stock-Picking/dp/1264274963/ref=sr_1_1?crid=4TEJ7ROO1TVZ&keywords=nothing+but+net&qid=1653077374&sprefix=nothing+but+net%2Caps%2C141&sr=8-1

We talked about a key tenet in his book:

Focus most of your time on finding the highest quality companies operating in large TAM's, with relentless product innovation, a compelling customer value proposition, and great visionary management teams.  If you can buy these great companies, aka Brands, during periods of dislocations and off 30%+, even better, you buy them. Being able to buy a great business trading off 30%+ and trading at less than 2x their growth rate is a great LT opportunity.

We covered Amazon, Google, FB-Meta, Apple, Uber, Booking, AirBnb, and tech investing in general.

Great insights from a very smart and humble guy! 

I hope you enjoy the conversation!

For more information about the Dynamic Brands equity strategy, https://www.globalbrandsmatter.com/dynamic-portfolio

In episode 6, I have a wonderful conversation with Barry Schwartz of Baskin Wealth in Toronto. Barry's a very smart investor of high quality, stable companies. We talk about the current market sell-off and what drives his investment decisions. Baskin runs a core equity portfolio that holds some significant exposure in Mega Brands like Microsoft, Apple, Google, Costco, Visa, Amazon, Netflix, Ferrari, Domino's Pizza, Vail Resorts, and more.  We talk about the firm's target client and running their core portfolio plus some bonds where appropriate. Barry focuses on 5 core criteria:

1. Moat businesses

2. Tailwinds for opportunities

3. Great management & culture

4. Strong history of smart capital allocation decisions and ROI

5. Attractive valuations

Portfolio focus: think like a business owner and don't sell the companies that execute.

Clients have benefitted greatly because of this strategy and have some tremendous long-term gains.

Great convo on Adobe and what looks attractive to his team.

For more information on Baskin: https://baskinwealth.com and [email protected]

For more information on the Dynamic Brands portfolio: https://www.globalbrandsmatter.com/dynamic-portfolio

In today's chat, I talk with an incredibly experienced retail investor, Rahul Sharma of Neev Capital (@Retail_Guru on Twitter) 

Rahul is a former Global Consumer Fund Manager and has worked with Citi and Alliance Capital.

Our discussion begins with the state of the consumer and consumer balance sheets. We talk about consumer sentiment and the inflation that consumers around the world are seeing and feeling in their purchase decisions. We talk about the obvious high comparisons across the consumer discretionary & staples sectors. We dig deep into the concept that many of the most relevant brands are now structurally much stronger and how the best brands used the pandemic to become a better company. The opportunity is to identify the better companies that are still trading for multiples that do not reflect they upgraded business models, margins and growth opportunities. Consumer sentiment is now back to 2009 levels which makes it more like a contrarian indicator as the economy heals and inflation goes lower over time. US housing is still severely supply constrained and high end consumers are still generally flush and willing to spend on important, high priced consumer goods. Rahul answers my question about a handful of brands that he would be comfortable owning for the long-term without much worry.

We talk about the following brands: Dicks Sporting Goods, Target, Williams Sonoma, Home Depot, Lowes, Amazon, Nike, LVMH, Richemont (Cartier)Porsche, Estee Lauder, RH, Nordstrom Starbucks as well as broadly about the discount brands like DLTR and DG

For more information on the Dynamic Brands portfolio: https://www.globalbrandsmatter.com/dynamic-portfolio