Silver banana goes to…

In this issue of the peel:

• July’s Fed Minutes were even more boring than usual. With no major surprises, all eyes are on JPow at Jackson Hole later today. If this guy says anything even remotely, someone send me his address so we can have some words.

• Is there another pandemic I don’t know about? I wouldn’t be surprised, given the boom in shares of Peloton and Zoom Video. Snowflake’s strong quarter sent shares tumbling (obviously), and Williams-Sonoma is as upset about the housing market as your average home buyer.

• We’ve spent the last few days doing our least favorite thing—talking about U.S. politics. So, today, we analyze the economics of an institution that is even more crucial than the federal government—Buc-ees Inc.

Market Snapshot

Banana Bits

• Lina Khan and the FTC’s noncompete ban idea gets benched by a federal judge—seems like another plot twist in her saga!"

• Advance Auto Parts reveals novice-level earnings and the sale of its wholesale business to The Carlyle Group, sending shares tumbling.

• Alex Cooper of Call Her Daddy just penned a $100mn deal with SiriusXM… the real question is how tf a radio station has that much money.

• Adjusted for inflation, U.S. total credit card debt ain’t too bad.

The Daily Poll

Previous Poll:

Over the past year, have your personal finances/economic lives…

Improved: 49.7% // Declined: 34.4% // Stayed about the same: 15.9%

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Macro Monkey Says

Can’t Wait Another Minute(s)

Like when you’re 10 minutes into a Quentin Tarantino movie, we already know how this is gonna end.

But, you’re damn right, I’ll still be thoroughly entertained.

The same goes for the Fed’s September meeting. Powell will be speaking in a few hours, but he’s dropped enough hints already, especially with the latest Fed Minutes.

Let’s get into it.

What Happened?

On Wednesday, the Federal Reserve spilled the latest tea from the world’s nerdiest group chat.

In other words, the Minutes from July’s FOMC meeting were released, giving us insight into how our economic overlords are thinking about economically lording over us going forward.

As expected from our Central Bank, July’s Minutes didn’t contain any major surprises.

But there was one tidbit over which everyone with a journalism degree who knows how to spell EPS freaked out. FOMC participants remarked that:

“The vast majority (of FOMC participants) observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

Boom, mic drop, the stage is set—the FOMC all but confirmed they will be cutting rates in September.

But we already knew that. If the above statement came in even slightly less dovish, that would’ve likely been taken as a negative surprise for the ever-fickle Mr. Market.

Keep in mind—these comments reflect the Fed’s view from July 31st. Since then, almost all macro data has pulled in favor of cutting rates yesterday, leading to the spike in rate cut probabilities seen above.

Now, markets are pricing in for 100bps—or 1%—worth of cutting by year-end. These probabilities imply a 25bp cut next month, followed by another 25bps in November, then a 50bp cut to end the year.

And, according to their Minutes, U.S. central bankers are at least okay with that plan.

Kind of like how those closest to you likely know you better than you know yourself; the market knows the Fed much better than JPow does. If the Fed hints at doing something, it gets priced in, and the central bank is forced to either do it or shock markets.

Some other notable quotes from the Minutes included:

• “With regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent.”

• “Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months.”

• “The monthly pace of payroll job gains had moderated from the first quarter but had been solid in recent months. However, many participants noted that reported payroll gains might be overstated, and several assessed that payroll gains may be lower than those needed to keep the unemployment rate constant with a flat labor force participation rate.”

The Takeaway?

In English, the Fed is basically saying:

• Inflation is chillin’.

• We don’t have to be too concerned because the underlying drivers of inflation continue to move lower.

• We do have to be concerned with the labor market.

Markets have been mixed and lower since the release of the Minutes on Wednesday and in the face of Powell’s Jackson Hole speech tomorrow.

This reaction is likely evidence that markets think:

• The Fed is admitting they waited too long to cut rates, risking the labor market.

• The U.S. macro situation has only gotten worse since the July meeting.

• Despite this, the Fed is still planning to cut by only 25bps.

Powell’s been a bit of a procrastinator during his tenure. Commonly, economists argue he waited too long to start raising rates and to stop growing the balance sheet, leading to the inflation we saw in 2021-2023.

To be fair, the Fed is part of the government, so of course, it moves slowly. Add in the fact that Powell is a trained lawyer, and it’s no wonder we’ve spent most of his term waiting and losing money (or, is that last part just me?)

What's Ripe

Peloton (PTON) 35.42%

• After becoming famous for killing characters in shows like Billions and Sex and the City, Peloton is ending its murderous rampage to get back to growth.

• The downhill ride ended as, for the first time in >2yrs, the stationary bike and treadmill maker grew sales, even if only by 0.23%. Gross margins expanded to 48.5% from 31.3% last year.

• Growth was driven by new subs from sales on the secondary market. Investors were psyched, realizing that the company’s turnaround plan might actually work.

Zoom Video Communications (ZM) 12.97%

• Trigger Warning: Your trauma from the summer of 2020 could spike with Peloton and Zoom rising. I promise we’re not locking you back inside with your family…

• Like Peloton, Zoom had a much-needed good quarter. Sales missed, growing just 2.1% YoY, but earnings beat estimates at $219mn, growing 20.3%.

• Investors were excited by the 26% free cash flow growth and the 7% increase in large client spending. The guidance also came in above Street estimates.

What's Rotten

Snowflake (SNOW) 14.70%

• Imagine applying to college as class president with a 4.0 GPA and an SAT score above 1600 and still not getting into any. Snowflake doesn’t have to imagine…

• The cloud data warehousing firm reported sales and earnings above estimates, with revenue up 30% YoY, a retention rate of 127%, and a record RPO of $5.2bn.

• However, costs continue to pile up, especially in R&D. Guiding for 22% sales growth next quarter, the strong results weren’t enough to justify their Herculean valuation.

Williams-Sonoma (WSM) 9.28%

• In order to buy home furnishings, one first needs a home—which isn’t exactly easy if you’re born after 1985, and Williams-Sonoma is pissed.

• The furniture and cookware maker reported a 3.3% decline in comparable brand sales, leading sales of $1.78bn to miss by 1.5%. EPS managed to beat it.

• Gross margins expanded as higher-priced products continued strong. But, with the housing market just now starting to exist again, brighter days may be ahead.

Thought Banana

The Economics of Buc-ees

We’ve spent the week yappin’ about economic plans from our Presidential candidates, but there’s an even more crucial U.S. institution whose econ policy we must discuss.

It’s key to understanding the economics of great companies. Today, we’re not talking about Apple, Coca-Cola, or McDonald’s, but…

What’s Going On?

Buc-ees Inc. is a chain of convenience stores/travel centers, gas stations, and EV charging networks scattered primarily across the American South. But it’s also so much more.

These locations are pilgrimage sites where travelers bask in American excellence and indulge in pure extravagance. I’d say it’s more similar to the Grand Canyon than, like, 7-Eleven.

Buc-ees sites are temples to the American spirit’s pursuit of freedom, adventure, and, most of all, bigness.

Currently, there are 50 Buc-ees locations in operation, ranging from Florida to Texas to Colorado and Kentucky. Each location averages an unnecessarily ridiculous ~100 fuel pumps, with the Florence, South Carolina locations operating 160 in total.

Lulling, Texas—population 5,545—boasts the largest Buc-ees location and largest convenience store in the world. At 75,593 sq ft, these “convenience stores” are just shy of the size of a Walmart.

According to the most cited estimates, Buc-ees pulled $2.5bn in revenue in 2022. At a 20% annual growth rate, that implies 2024 revenue of $3.6bn in 2024, roughly the size of Roku, Formula One Group, or H&R Block, for reference.

It’s estimated that the firm carries a gross margin between 30-40% and earned $200mn in net income in 2022, an 8% net margin.

That implies the average Buc-ees location earns $50mn in annual revenue and profits $4mn. So, it’s no wonder the firm is able to pay employees like this:

Keep in mind that Buc-ee’s locations are intentionally placed off the beaten path. They erect these massive monuments in rural, small towns specifically to target road trippers, even going as far as adopting a “No 18-wheeler policy.”

Besides their famous beaver nuggets, smoke sticks, fudge, and other food, the best part about stopping at Buc-ees is the bathrooms. 

The last time a “Cleanest Bathrooms in America” test was run, back in 2012, Buc-ees wiped up the competition (no pun intended) and came in first place.

The Takeaway?

There’s low-key beef in the U.S. between regions of the country and the convenience stores that dominate them. Wawa, Sheetz, and QuikTrip are some examples, but none other has quite the cult following and universal adoration afforded to Buc-ees.

The company has been able to achieve this by finding its niche in alignment with the values of the southern population, commitment to excellence with its food and clean bathrooms, and unique branding that encompasses a sort of spirit of adventure.

That’s usually done with billboards like this:

Only ~1,100 hundred miles away! And in the case of Buc-ees, it’s certainly the destination that matters a lot more than the journey.

The Big Question: What other companies are this unique compared to their competitors? Can other companies repeat the Buc-ees recipe to create such a cult following?

Banana Brain Teaser

Previous

A garden center sells a certain grass seed in 5-pound bags at $13.85 per bag, 10-pound bags at $20.43 per bag, and 25-pound bags at $32.25 per bag. If a customer is to buy at least 65 pounds of the grass seed but no more than 80 pounds, what is the least possible cost of the grass seed that the customer will buy?

Answer: $96.75

Today

There are 10 books on a shelf, of which 4 are paperbacks and 6 are hardbacks. How many possible selections of 5 books from the shelf contain at least one paperback and at least one hardback?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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