Welcome back everyone. In this episode we have a three
parter. First of all, Disney just
reported earnings and the stock is down 10%.
On the day. We have the data, we have the
numbers. We're going to be taking a look
at what happened with Disney and why the stock is down.
We also had Jim Cramer on CNBC Mad Money yesterday talking
about none other than Texas Roadhouse.
He did an entire segment on Texas Roadhouse.
Now obviously I have some thoughts on this segment.
I want to do a reaction. We'll be playing some clips from
it and going through what Jim Cramer decided to highlight.
And then finally, we have this Story fund, my secondary
portfolio that we haven't done an update on for a while.
So we're going to be looking at the Story Fund and seeing how my
performance has been compared against the S&P 500.
So we have a lot to get to in this episode.
Let's go ahead and jump in. Now let's go ahead and start off
with Disney. I'll go through the good and bad
of this quarter. We can look at the earnings
report here and look at the most important aspects of this
previous quarter. The earnings per share was a
beat. So that's a good thing.
And they beat on their revenue or at least they came in line
with their revenue expectations. So overall, the top and bottom
line were good. They had a great quarter this
last quarter. Another thing that I think is a
good positive is they reiterated the $8 billion of free cash flow
right here. They say they're going to have 8
billion this year. Now like I pointed out before,
if we look at Disney's free cash flow, $8 billion is right here.
So this brings you back into the Marvel era, into the pre COVID
era of them generating a lot of free cash flow.
It'll be right there. That's good.
This is good news for Disney. So as an investor in Disney, I
would look at the $8 billion and be very happy that they say
they're going to make that. I'd look at the earnings per
share and revenue share and be happy about that.
Another thing I think is important to track for Disney is
the total subscribers and they give us an update this quarter.
If we look at the most recent quarter here on Qualtrum, we can
see the total number of subscribers per service, for
example, with Disney plus domestic.
So this is just like USA and Canada.
Disney plus domestic had a nice bump up from 46.1 to 54,000,000.
So they jumped up last quarter, which I think is a big positive.
If we look at international, this bump down a little bit, so
went from 65 to 62. They did a price increase.
That's why they lost a few subscribers.
So that's not a positive, but it's still not terrible.
If we look at Hotstar, this is the least meaningful service
because it doesn't make much money per subscriber.
This went down a little bit from 38 million to 36.
But again, Hotstar is not the most important thing.
The Disney plus domestic is far more important.
Then we look at Hulu and this actually gained a few
subscribers from 49.7 to 50.2. So overall, I view this as
positive. They're streaming.
Subscribers are stabilizing and even gaining in their most
important markets. When we break this down to the
average revenue per subscriber, we can look at the Disney Plus
domestic. This went down slightly, only
$0.15, but Disney Plus domestic makes $8 per month.
We look at Disney Plus international.
This is why they lost subscribers.
This went up big time from 5.9 to 6.6.
So they did a big price increase that cost them some subscribers,
but it makes their average revenue per subscriber go up.
So it's a net benefit. Now like I said, with Disney
plus Hotstar, they only make $0.70 per subscriber, $0.70 a
month. So this is not a meaningful
portion of the business. They're making pennies on these
subscribers. If we look at this in
comparison, this is what it looks like in the orange here in
the yellow we have Disney Plus domestic and the blue we have
international and then that sliver on top is Hotstar.
So Hotstar is not a meaningful portion of revenue.
And then we get to Hulu, which is massive.
The average revenue per month for Hulu is $95 per month, but
even Hulu did move up quarter over quarter from $93.00 to $95.
So so far this quarter looks decent.
The revenue is growing, the earnings per share is growing,
the amount of subscribers in different regions is growing and
the average revenue per subscribers even taking upwards,
all the metrics look really good.
And then on top of that, they reiterated their most important
metric, the $8 billion of free cash flow this year.
So I'm happy if I'm a Disney shareholder at this point, but
there are some weaknesses here. They said that the theme parks
would be flat in the June quarter when the analysts were
projecting 12% gains year over year.
So the analysts thought that there's going to be 12%
operating income gains, but theme parks are going to be
flat. That's where you get the 10%
down. And then to add on to that, the
CFO recently said just in an interview that there's some
normalization of post COVID demand.
The CFO is basically saying that now families have more
opportunities to vacation elsewhere instead of visiting
Disney Park and that's lowering their amount of demand and their
pricing power. So instead of Disney Parks
growing operating income double digits, it's going to be flat
and that is where you get the 10% down, The disappointment on
the forecast. Now even with this disappointing
guidance on the parks, the stock should not be down 10% on this
earnings. Disney had decent earnings.
They beat most of their metrics and they still reiterated their
most important metric, which is their free cash flow generation.
So I think the stock should be next to flat on this earnings.
Now moving on from Disney, we have to get into this next news.
We had Jim Cramer from Mad Money do an episode where the primary
thing he talked about was none other than Texas Roadhouse.
Now of course, if you follow the channel, you'll know that I've
owned Texas Roadhouse as a stock for years.
I've owned this company and it's been one of my best investments.
In fact, right now it's grown to my third largest position,
$72,000 with $37,000 in gains. This has truly been a a terrific
investment. Not only has it gained a lot in
capital appreciation, but the company pays out a hefty yield.
So I've been getting dividends at the same time.
Now anytime a national news network covers a stock I own, I
like to pay attention, but especially if it's a stock that
doesn't get talked about too much, one like Texas Roadhouse.
So I wanted to tune in and see what Jim Cramer had to say.
We'll go ahead and just highlight a couple clips here.
This is from last night. Spent a lot of time talking
about restaurant earnings because we're seeing a big
divide between the winners and losers and the group.
It's pretty fascinating. But you know what?
I never got around to the best restaurant quarter of all.
Yes, Texas Roadhouse. That is true, what he says.
The first thing he points out is that we're seeing a huge divide
between the winners and losers. Absolutely true.
This isn't a case where the entire industry is doing well.
There's there's so many restaurants right now going out
of business, right? There's the Red Lobster.
There's all these different companies that are struggling.
And then there's massive winners.
Texas Roadhouse is the biggest winner by far in the restaurant
category, and I don't believe that that's by random chance.
If you look through the fundamentals and you study the
business, there's reasons why they're winning.
Which imported a beautiful quarter last Thursday night.
They sent the stock up 3.6% on Friday and then another 2.5%
today. That's a good one.
Tonight. I want to put a spotlight on
this one because Texas White House has delivered a series of
great results despite being the full service base.
At a time when quick serve outfits have generally been the
winners. This thing's been roaring,
though, climbing from less than $100 late last October to 167
and change today. People don't talk about it
because it's not in New York City, I guess.
I don't know, so let me walk you through.
He says people don't talk about it, Jim.
I talk about it. I talk about Texas Roadhouse.
You you got to subscribe to the channel, man, you're you're
missing out here. We can have Jim Cramer as a
subscriber. I'll get you some good stocks to
follow, Jim, ones that your your viewers will enjoy owning.
But I've been talking about Texas Roadhouse for years,
literally years tweeting about it.
In fact, I've had some viral tweets.
One of them that I compared Texas Roadhouse to Google got
viewed well over a million times.
So this has been a stock I've talked about.
In fact, one of the first videos I made on Texas Roadhouse was
This was three years ago. Three years ago I made this
video. Welcome everyone to Joseph
Carlson. After hours in this video, I'm
going to be talking about a company that I'm going to be
buying this week. Quite a bit in fact.
I plan on making it one of my core holdings in the passive
income account. The company is called Texas
Roadhouse. It is a restaurant and I'm going
to go over why I'm picking this one over the other many options
and why I'm buying restaurants at all, even though it's a
highly competitive industry that offers very little motes.
That was back three years ago and I've made numerous videos
since that point. So it is true, Jim.
Most people are not talking about Texas Roadhouse, but there
is one person, one person that has been sounding the alarm for
this stock for a number of years.
What makes this story so compelling?
Because it is textbook Texas Roadhouse is nearly 700
locations with 45 locations for Bubba's 33 Think burgers, pizza,
wings, beer, and 11 stores for its new fast casual concept
Jaggers. The vast majority are company
owned, giving them more control over everything from menu
pricing to staff levels. That's kind of like Chipotle.
They pay extremely generous bonuses for restaurant level
managers to deliver good results.
Put it all together in the stock spin.
See how he keeps comparing it to Chipotle?
They're wholly owned. They're they're staffed by the
the company itself. Like Chipotle, There's
similarities between these two companies.
It's the reason that I've gone into Texas Roadhouse and
Chipotle. They both are mostly wholly
owned restaurants and they run a very similar playbook even
though they're in different different segments of the
industry. And a fabulous Post story ever
since they came public way back in 2004.
But nobody talks about it for me.
I've been talking about it, Jim. I have subscribe to the channel.
You'll get some. You'll get some good stocks.
I'll I'll hook you up with some good stocks.
Hey, the most impressive thing about Texas Roadhouse is that
the stock's been a juggernaut lately.
Even as most full service change, they've struggled.
How do they do it? OK, simple.
Texas Roadhouse has figured out how to offer high quality food,
including steaks at reasonable prices.
Claim one of the most compelling value proposition for consumers
in the whole full service dining category.
He nails it. That's the investment thesis.
Go to different restaurants, go go to Chili's and any Darden
restaurant. Go, go to LongHorn Steakhouse,
you know go to anyone and compared to Texas Roadhouse and
you'll know that the value proposition is a lot better.
With Texas Roadhouse, they have figured out how to offer steaks,
good ones that they will cook right or they'll re cook them
for you. And they do that cheap.
It's relatively cheap. It's it's a a place that the
average person can take their family to and not feel like
they're getting robbed. That is a great value
proposition. And as Jim goes on to highlight,
this value proposition is even compared to places like
McDonald's. Now we know that lowering cost
consumers are pretty cash crapped right right now and this
earnings season we found out that the restaurants that can do
well are the ones that give people a good meal at a good
price. That's a common thread we've
seen from some of the strongest reports like Domino's Pizza or
Breaker International Wing stop others that raise prices too
aggressively without clear value proposition.
Here I'm including McDonald's and yes, Starbucks are now
suffering from traffic to clients as customers over their
feet. This one exception to this
theme, though? It's just Chipotle which has
raised prices aggressively, particularly in California,
because of that minimum wage issue, yet has seen no
deterioration demand at all. He highlights that the only
other company aside from Texas Roadhouse that has raised prices
aggressively and not seen a decline in traffic is Chipotle,
which happens to be my only other restaurant stock I own.
So again, you can see that this is just random luck, that these
two companies are doing well. But I argue that if you study
the companies, you'll be able to differentiate between the ones
that are likely to do well and the ones that are likely to do
poorly. Texas Roadhouse and Chipotle
both offer a better value proposition for the customer
than almost any other restaurant, and that's why
they're excelling right now. But even though they're similar,
they still have some notable differences.
Wow. Now Texas Roadhouse, on the
other hand, has followed the more typical blueprint for what
works. The stock actually bottom late
October, after the company reported a big Ernie's miss,
their third Ernie's missed in four quarters.
Not good. But Texas White House rallied in
response because Wall Street was focused on their terrific
revenue momentum. In late October, they delivered
8.2% Same store sales Quote. Wall Street's only looking for
7.5%, even as the rest of the industry was starting to lose
steam on the traffic. At least Texas Roadhouse never
did. To put it another way, last year
the restaurants were still dealing with plenty of
inflationary cost pressures, and many decided to raise prices in
order to pass those customers on to you.
Texas Roadhouse didn't take some price, but they were much more
measured with the price hikes because they were.
That's accurate. So a lot of restaurants, when
they do price hikes, they're doing these crazy price hikes
where they redo their menu and all of a sudden you're kind of
shell shocked when you come in and it's just so much more
expensive. And the way that Texas Roadhouse
does it is so much smarter. They raise prices 2% at a time.
Now if you go to get a family meal one day and then you go
back like two months later and it's 2% more expensive, are you
really going to notice a difference?
No, most people don't notice a difference.
So when they're implementing these 2% price increases like
every eight months, that's a much better pricing strategy
than what a lot of other restaurants are doing where
they're increasing prices by 10% or 15%.
So the strategy that they do to implement this is far better
than their competitors. Really care about giving people
good value for their money. That decision hurt their
earnings in 2023, but the strong same store sales showed that the
customers liked it. They they had a little more
vision ever since the stock bottom late October, the
companies reported two more quarters, one in February and
one last Thursday. And on both occasions they made
real progress from getting costs under control while continuing
to deliver fantastic same store sales.
In short, it's all coming together for this Texas
Roadhouse. Now they didn't raise prices
aggressively when the rest of the industry was doing that and
now the customer basis is rewarding them for it.
Doesn't this make sense right? They didn't raise the prices.
People went there. The other guys raised prices.
They stopped going to them when Texas Roadhouse.
It's funny. I mean, I agree with everything
he's saying here. Texas Roadhouse didn't raise
prices, but they just took all the customers of other
restaurants their their traffic levels went up an incredible
amount. They had an increase in foot
traffic and because they're so good at turning over tables,
they they clean those tables fast.
They have a good staff that they can get people in and out
quickly, which means that they can they can turn a lot of
tables in a night. They can make a lot more money
with the same prices by having more traffic.
Important, in February it had a 10.1% comp restaurant sales with
that's incredible for the full year with more than half of that
increase coming from traffic improvements, more people when
you add in the company steadying your new store growth.
Their total revenue grew 15.4% last year And for all the hand
wringing about the earnings misses, Texas right now still
saw its earnings per share grow by 14.3% last year.
Management's initial guidance for 2024 included calls for
positive same store sales growth and store weak growth of roughly
8%. Store weak growth is a quirky
metric that accounts for new locations.
At the same time, they talked about mid single digit commodity
cost inflation and labor inflation.
Put it all together and the stock jumped 10% in response.
The numbers were just that good. Fast forward to last Thursday
night, Texas Roadhouse reported yet another blowout.
This time they had 8.4%. Same for sales growth.
Wall Street was looking for 7.8, some of the best comps we've
seen from the many major restaurant chain this earnings
season. CEO Jeremy. 8.4 Same store sales
growth is just incredible for a restaurant right now.
A lot of places would love to just keep it flat.
Starbucks, McDonald's, they're struggling to just keep theirs
flat. And Texas Roadhouse is growing
8.4%, guiding for the high single digits this year.
Incredible stuff by them. Oregon noted that strong traffic
trends continue to drive sales growth.
Crucially, Texas warehouse modest price increases have
taken effect just as some of the cost inflation is fading away.
The restaurant market came in 17.4%, up 150 basis points year
over year and 50 basis points above what the analysts
expected. That's sensational.
Even better Texas Rentals gave us some bullish outlook, bullish
updates on the full year. First Magic disclosed this
through the first five weeks of the current quarter, same store
sales were up 9.3%. So you got a meaningful
acceleration versus the first quarter.
For the full year, they also lowered their commodity
inflation cutting from 5% to 3%. What a story.
So. He's right.
Right. As right as their price
increases really took effect, a lot of their input costs went
down. So their margins are going up at
the same time. And on Texas Roadhouse's
earnings call, they always say that they never price things
based on their input costs. They know that those fluctuate
up and down over time. They think that they're just
cyclical expenses. So they pricings based on their
their employee and their pay, not based on input costs and
commodity costs. Better recap.
Texas, right Else looks on, looks on traffic, looks on track
to deliver. I would say much better than
expected same store sales and while the cost inflation will
likely be lower than expected, that's such a combination.
It's ideal and it's why the stocks rallied so strongly in
response to the latest quarter. Now the comps, well CEO Jerry
Morgan put things pretty simple. He said, quote, our strong
results continue to reflect our operator's commitment to the
consistency and quality of the food, the hospitality they
provide and our everyday value. The the benefit of our long term
approach to the business and our focus on always prioritizing the
guest experience is evident in the record sales margin dollars
and net income for the first quarter.
End Quote. See, this is a great story.
This is how it's supposed to work.
You don't take the price, you don't gouge the people, you end
up getting more people to come, You can take price a little bit
and then the costs go down. This is what business is about.
So despite the fact that Texas Red House operates in one of the
more challenged sub sectors of the restaurant industry, the
full service base, I think it deserves to be in the upper
echelon restaurant stocks right now.
This has been a long, great growth story.
But right now, in particular, Texas Red House is killed.
Here's where he goes on to kind of give his his recommendation
for the stock. Because they never drove the
customer base away with aggressive price increases, as
we know some have, making them a rarity in the restaurant space,
one that can clean up now. The cost pressures are fading
away. Of course, after the latest one,
the stocks are up 37% year to date, and up here, it's quite
expensive, 28 times this year's earnings estimate.
But I like it. Bottom line, if you buy Texas
Roadhouse stock at these levels, you're chasing it, I admit.
So I think maybe it would be great if you were patient.
Maybe the stock cools off a little before you start a
position. But if you can't resist it after
what I just told you, you know what?
You got my blessing because this is 1 terrific story.
There you go. There's Jim Cramer's take on
Texas Roadhouse. Now, first of all, I agree with
almost everything he said. Aside for the fact that nobody's
talking about it, there has been one person talking about it.
But everything else he said about the company, I agree with.
It's great. The company's executed great.
They've been careful with their pricing power.
They've stolen a lot of traffic from other restaurants, as I
assume they would. They're consolidating a lot of
traffic into their stores and the numbers across the board
look great. A lot of people say that this
type of thing is random luck or it's just, you know, you can't
pick these type of stocks. But you can if you look at the
fundamentals, if you look at the numbers, the reason that I chose
Texas Roadhouse over all the other competitors, over Chili's,
over, you know, Olive Garden over Cheesecake Factory, over
all these other stocks is because of the fundamentals.
It has more consistent revenue growth, more consistent free
cash flow generation, has no long term debt, has more
consistent earnings growth. It was more reliable during the
Great Recession and the management's better managed and
better operated than the other restaurants because they have
better incentives for their operators on a per restaurant
basis. So there's a reason that Texas
Roadhouse has outperformed other restaurants and that's not based
on luck. But another thing that I'd like
to highlight is that by the time Jim Cramer catches up to this
and catches wind of these stocks, you'll notice that
something's already occurred. By the time CNBC is talking
about this stock, it's one of the best performing companies in
the market year to date. It's up 40% currently year to
date, not counting dividends. So it's on a huge, monstrous
role. It's on a huge streak.
In the past six months, it's up 61%.
Past five years, it's up to 105%.
Plus the company again has paid quarterly dividends that are not
small dividends. So I think that's the biggest
take away here is even though everything Jim Cramer said is
correct, I think the stock is great.
He's highlighting it at possibly one of the worst times when the
stock just went through an epic run.
That's when they decide to shine a light on it.
So if you're following the mainstream network CNBC, this is
what's going to occur after stock already goes through an
epic run upwards. Then they're going to shine
light on it and people will chase the stock.
At that point. If you want to have market
beating performance in the stocks, it's not the best idea
to chase them when they just recently surged to all time
highs. It's better to buy them when
there's weakness, when no one else is talking about them, when
they're not being highlighted on CNBCI bought Texas Roadhouse
when it was $70.00 per share. Nobody else really talked about
this stock. It had no positive sentiment.
And that's the time to pile into companies that don't have
positive sentiment but have incredibly strong fundamentals.
Now moving on from that, it's been a while since we've done an
update on the Story Fund. If you're not aware, I have two
portfolios. The primary one, the largest
one, is called the passive income portfolio, and then I
have a secondary portfolio here called the Story Fund.
Now this one's smaller, but it has a specific reason for
creating it. The reason I created the Story
Fund was with the express goal of competing with the S&P 500.
My goal is to beat the S&P 500 / a five year period, so from
early 2021 until the end of 2025.
And it's just a friendly competition.
A lot of people say the S&P 500 is impossible to beat.
It's super difficult to beat. So I thought it would be a fun
competition to go against the S&P 500 and track it publicly
every single week. That's what you can follow along
and see whether I win or lose. Now, my strategy in
outperforming the S&P 500 has been to concentrate into
incredibly high quality companies that I believe have a
very limited downside and ample upside.
Companies that have huge scalability, companies that have
an enormous amount of operating leverage, companies that have
moats that I believe are insurmountable.
I want zero chance of losing against the S&P 500.
So I've concentrated into companies that I think have
incredibly small chance of failure and huge chance of
success. Three of the positions that make
up this portfolio are cloud companies, and that's not by
random chance. You have Microsoft with
Microsoft Azure, you have Google with Google Cloud Pro, and then
you have the biggest one, Amazon, of course, with AWS.
The reason that I concentrated into public cloud is because I
believe those companies are easy winners.
They're going to continue to win with the cloud.
The other segments of their businesses are amazing, but the
cloud is the primary driver of intrinsic value.
Amazon makes up 35% of the portfolio, Google makes up 20%,
Microsoft makes up roughly 9 1/2%.
So that's a huge portion of it. Then we have Netflix is another
kind of outside bet that I've really leaned into 30% of the
portfolios in Netflix because I believe the company is going to
be a large scale streaming winner.
I believe that the industry is consolidating and I believe the
economics are going to show through.
We've already seen this company generate a lot of free cash
flow, $7 billion in one year and I think that's just the
beginning. The operating leverage inherent
in Netflix is massive and I still believe the Street is way
off in their estimates for it. So Netflix is another company
that I think will continue to be a winner.
Now this portfolio has really crushed it year to date so far
in 2024. It's just done amazing.
To put this in perspective, if we filter by year to date, the
money weighted returns are 19.47%, so 19 1/2%.
If we compare that against the S&P 500, SPY is up 9.5 and then
the QQQ is up 9.42. So this year we've done double
the S&P 500 and the QQQ and that leads us to the out performance
so far in 2023 is where we made the big comeback.
My portfolio's in blue, the S&P 500 here is in red, and you can
see the Story fund catching up against SPY in 2023.
That's because companies like Amazon and Google and Netflix
and all of them had enormous growth in 2023.
But then even in 2024, we have this big spike right there
that's Amazon's earnings. Amazon went up after earnings
that caused the portfolio to go up.
Netflix has recovered after its drop in earnings.
And so the portfolio now is at a gain of 42.6% against the S&P
500 at 31%. So we have an 11% lead over SPY.
And again, this is going to go on until the end of 2025.
S so far so good. We're in the lead.
In fact, we're gaining a bigger and bigger advantage.
I think that advantage is going to widen over time, and the hope
is that I don't barely beat Spy, but I beat it by a large margin.
But either way, time will tell. I can't see the future.
So if you want to see how this turns out, just TuneIn.
I'll show you the progress every single week.
That's all for this time. See you in the next one.