Apple Launches New Products in Time for New CEO

0:01Tyler Crowe:Apple has a new product. Does it have a new corporate direction? Motley Fool Hidden Gems Investing starts now.

0:12Tyler Crowe:Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors Jon Quast and Matt Frankel. Guys, we're going to get into, obviously, we have the new product relance as Apple. We're going to get into the mailbag. But before we get started, stop me if you've heard this story already. A company posts results somewhere between okay and good, and the stock falls precipitously after. It's been a pretty common theme this particular quarter, I feel like, as we've been talking through earnings results. And we could have done this for a few companies that have reported in the past, I don't know, 36 hours or so.

0:48Tyler Crowe:But let's focus on two. Online pet retailer Chewy and good old brick-and-mortar convenience store Casey's General Stores. Both of them saw at their peaks about double-digit declines after reporting earnings. So guys, we're going to start with Chewy first. And what did the market see that they didn't like? And did it line up with your thoughts on the earnings report? Well, Tyler, you look at Casey's, you look at Chewy's, and I think that these stocks are down for different reasons, even though the narrative is pretty much the same as somewhere between OK and good. Starting with Chewy, I mean, you do look at the bottom line numbers.

1:26That's not the problem here. These bottom line numbers look pretty good. The profitability, the margins, that looks okay for Chewy. Nothing really to worry about in this area. It's maintaining that gross margin in particular, and that's really key for a low margin marketplace such as this. But Chewy, you know, it had decent sales growth on a year-over-year basis, but you look at the quarterly numbers. So compared to last quarter, Chewy did experience a small pullback in its sales and in particular the auto ship sales. So a lot of its customers just have it set up where they're going to receive a shipment from Chewy on a schedule.

2:08Those are supposed to be kind of these locked in loyal members. seeing a slight quarterly or quarter over quarter dip in those numbers is somewhat concerning because there really isn't seasonality in the pet care business. Your cat needs to eat food regardless of the quarter, right? So to see that small pullback in the chewy sales on a quarterly basis is a little bit concerning. Yeah.

2:33Jon Quast:And I mean, to that, one number that stood out to me, their net sales per active customer. It was up 1.9 % this quarter. That's down from a growth rate of 4.6 % in the first quarter. And not only that, 1.9%, that's lower than the rate of inflation. So on a real basis, you can say that Chewy sales actually declined. So customers are not spending more. And that's concerning to me more on a macro level. I don't know about you guys. I have two dogs. There are a lot of things I would cut back on before I stopped buying treats and all kinds of goodies for my dogs that, you know, people spend money on that.

3:05Jon Quast:So it's a kind of a recurring theme this earnings season that we're seeing, you know, a more discount heavy environment. We've seen that with a lot of the apparel companies. We've seen consumers pulling back on discretionary spending. Now, obviously your pets have to eat, but things like getting them a new leash every few months is, that's a discretionary expense. And we're seeing, you know, people pull back on that. So that, that's one, that's the number that really concern me it you know it's not profitability as john said the stock's down big year to date because investors are not willing to pay for chewy's exceptional margins at a time when top

3:40Tyler Crowe:line growth is decelerating so the theme here and for chewy and this has been pretty common with a lot of i it's hard to say chewy's discretionary retail like you said people spend money on their pets maybe they're going from the premium cat food down to the you know kind of bulk warehouse cat food, I guess would be the way to putting it to kind of pull back on spending a little bit. But it is slightly more discretionary than, say, like food convenience store purchases and things like that. And we saw something similar at Casey's General Stores. So what is the common thread here, at least in the earnings report for Casey's, that we saw a similar earnings reaction for what I would say is kind of like staple purchases in the form of like convenience stores, gas, you know, takeout pizzas and things like that for Casey's versus, as to your point, this slight discretionary aspect of what Chewy does.

4:31Jon Quast:Yeah, and I mean, with Casey's numbers, the headline numbers are really deceptive. You wouldn't realize how similar these companies' earnings reports were. So on the headlines, I mean, Casey's revenue was up 23 % year over year. Earnings were up 28 % year over year. It was all fuel. Tyler, you're an energy guy. You know how much fuel prices have soared. You know, that's the real non-discretionary part of Casey's business. People have to put gas in their cars no matter what. So fuel margins exploded year over year. That's where that earnings beat came from. When you look inside the stores, same store sales on the inside sales, that's like food and things like that.

5:07Jon Quast:That was up by 3.2 % year over year. That was a deceleration from a 4.3 % growth rate a quarter ago. You can make a case that that's a little bit ahead of inflation, but people aren't spending as much on the discretionary side of the business. And kind of like with Chewy, there's some discretionary components. There's the non-discretionary fuel and certain convenience items. But there is a lot where when we stop at a convenience store, my kids want candy. We don't have to buy that. But people are cutting back on those type of expenses more and more. And that's really what is worrying investors with both of these companies.

5:45Well, and to that, I would add that Chewy actually looks like a decent value here, trading at roughly 14 times forward earnings. But a big reason that Casey's is down, Matt, as you mentioned, kind of more what has been the historic profit driver is the inside sales, the food business that it has. But you look at the stock since the year 2000, Casey's has only touched 30 times earning, a valuation of 30 times earnings a handful of times. And that's just brushed up against that 30 times. Usually it trades around 20 times its earnings or even less. In 2026, it has traded above 40 times earnings and has even touched 48 times earnings right before it released this earnings report.

6:33That is roughly double its long-term valuation average. So a lot of expectations running high, high, high with Casey's stock. And then to kind of have that softness in what is traditionally the profit driver of the business, it's not surprising to see the stock get cut big time here.

6:53Tyler Crowe:I think you kind of hinted at it a little bit in your answer, but I want to put you both on the spot as we kind of assessing these earnings reports and thinking about, you know, stocks to buy and stuff like that. Given the choice between the two of these companies right now, where they are, Chewy's, Casey's General Stores, which one do you see as the better buy right now? Well, I'll jump in first there and say that I think that Chewy is the better buy here of the two. I am really optimistic on Chewy. I really like the business that it's built. I do believe that its customers truly love the business and kind of that personalized care that they give it.

7:29I will say I'm not a huge fan of some of the acquisitions that the company has made recently. It has made some acquisitions in more of the pet healthcare space. And I think that's smart. It hasn't quite paid off yet the way that management really hoped it would. I would hope that that would be a long-term driver for the business, but it hasn't materialized yet. More recently, it acquired a horse online marketplace kind of a company. And to me, it's really overpaying for that. And I'm a little bit concerned about that. So I'm not a fan of the acquisitions, but I do believe in the long-term sustainability of the company.

8:05Jon Quast:See, I was going to say Chewy as well until you said horse marketplace. But no, I still have to go with Chewy. You know, as I said, I'm a pet owner. Only pet owners understand how resilient this type of spending is. People treat their dogs like they're their babies, even when it comes to discretionary purchases. We can't get out of there without buying three bags of treats every time we go to PetSmart. Compared to the inside sales at Casey, I think that Chewy has a more resilient business.

8:33Tyler Crowe:Certainly something worth following. I mean, one of the things we have been talking about as a theme here, I think, in 2026 has been the consumer getting squeezed a little bit. And to that point of the durability of both of these companies, it seems like it's getting tested a little bit more in this year than we have seen in years past. Coming up after the break, we're going to talk about Apple's new product launch and how that may be signaling some changes to the company going forward.

9:01Tyler Crowe:trading at schwab is now powered by ameritrade giving you even more specialized support than ever before like access to the trade desk our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check need assistance no problem get 24 7 professional answers and live help and access support by phone email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab.com slash trading. Get a concise daily market preview from Charles Schwab, including stock updates, US and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

9:44Schwab Market Update is an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less. Listen today at schwab.com slash market update podcast or wherever you get your podcasts. That's schwab.com slash market update podcast.

10:04Tyler Crowe:This show has been going on for a long time. And there, uh, one of our former colleagues, uh, Bill Barker used to have this good saying is it's good to come in under low expectations. When you come in as a new CEO, you know, maybe coming in and trying to follow in the footsteps of somebody really good can be a hard hurdle to jump over. And in the case of CEO John Ternus, it does look like the hurdle's pretty high because he's taking over for Tim Cook at Apple. And when a company gets a new CEO, that new executive often tries to make some sort of early splash or make an impression on its customers and shareholders.

10:41Tyler Crowe:And it appears that Apple's new CEO, John Ternus, his splashy move is probably the biggest change to the iPhone in years. The company debuted the iPhone Duo at its most recent product launch event, along with some updates to the Apple Watch, a new Apple Watch Ultra coming out, as well as some other products and some, you know, kind of the routine updates we've seen for like the iPhone 18 and things like that. Now, I don't want to say this is a knock on the business because this is an extremely profitable business that's been growing. It's just, it's been on a trajectory that's pretty consistent for a long time.

11:15Tyler Crowe:And it hasn't really released a product that could alter the company's trajectory. So guys, I want to take this to you after kind of seeing the product release that we saw with iPhone Duo. It's a nearly$2 ,000 phone at the base level. Could this be like the product we haven't seen in years that could actually move the needle differently for Apple?

11:37Jon Quast:So let's put this into perspective here. So foldable phones are not new. This is not a new aha invention. They've actually been on the market in the US for seven years now. I've seen one in the wild. One. My neighbor has a foldable Samsung phone. They're essentially a rounding error for every company that offers them so far. No one's been able to successfully get the market's interest in this. Now, a lot of it was the initial build quality. You know, the first few generations of them, they would fall apart. My neighbor's phones had to be replaced twice for similar issues. So if Apple figures that product out, maybe.

12:10Jon Quast:Analysts generally think the duo is going to account for about 5 % to 10%, depending on the analyst of Apple's iPhone sales in the 2027 fiscal year, which is what we're in now. So even the bull case is assuming about a 10 % share of its revenue. It doesn't need to be a smash hit to make investors happy. It's not going to be their new iPhone moment, which that's fine. But the overall, the launch of that combined with the other two, that wasn't the only thing they announced. They announced the iPhone 18 Pro and I think the Pro Plus or whatever they called it. It's there's no base pro yet. So the average selling price of Apple phones could be higher, which I think is the big takeaway here.

12:51Jon Quast:And you're right. They haven't had an iPhone moment in a while. So this is not going to be it. I mean, there's a difference between building a beautiful product and being a product that is actually going to make a big difference in the company. I will say that this seems to be a quite beautiful product. You look at the engineering on the hinge in particular, it seems like Apple really pulled out the stops to make that an impressive part of the phone. Also, the screen itself, to not have a crease, that is just kind of one of those Apple touches that you'd expect. but to Matt's point I mean going back in history the the iPhone events used to be very exciting and I think it's because each new generation was truly a new step forward in what it could do and some of the features that it had it just makes sense in an early product history that each new step is going to be a large step those steps keep getting smaller and smaller and I think that's why kind of the oxygen has been sucked out of the room for the Apple launch events Look, I don't see this being a big needle mover, as Matt alluded to.

13:56This is maybe a high-end product that some people will use, and it is beautiful. But to really capture something that is going to be exciting for investors, you're really going to have to have a new product category, I believe. Maybe that's in a portable AI device. What exactly that looks like? I don't even think that the consumer knows yet what it wants in a portable AI device. I don't think that Apple knows what it's going to offer people yet, but that would be one possible area. But we've seen before, try to invent a new product category, and it's not really going to be a runaway success. The Apple Vision Pro was truly beautiful and a very interesting product, but it's just not really something the consumer's into.

14:38So it's hard to do.

14:41Jon Quast:One kind of, I guess, ironic observation I would make is that John Tarnas is supposed to be the product guy. the biggest change from yesterday's reveal could actually be an operational change the leasing program they're using you can get a duo for 58 a month at the base level that's a lot cheaper than it would be to just finance it over 24 months i'm a little bit biased i like clarna clarna is the one powering the leasing program but this could this could be the biggest needle mover one of the things apple's been kind of wrestling with in recent years is people are hanging on to their phones longer.

15:12Jon Quast:The upgrade cycle has, has extended. So a leasing model with a guaranteed upgrade at the end or upgrade availability at the end of your lease term guaranteed near they'll just take the phone back. It could create shorter upgrade cycles, smoother hardware revenue, and really be the biggest needle mover out of yesterday's release. When they're going to release the big product that, that everyone's hoping for from John Ternus. I don't know, Tyler, maybe you know better than I do.

15:38Tyler Crowe:Well, I mean, one can only hope I do. I think all of us have been around long enough that the initial like steve jobs products launches were on par with like a berkshire hathaway annual uh meeting type event where seeing what was coming next was huge and i would almost say that apple's a little bit of a victim of their own success here where it's like we expected these great things to come every single time and now that we're on I don't know, version 18, 19, 20. They say 18, but there was like a couple in there that weren't the same number. So I can't remember precisely where we're at in the Apple upgrade cycle.

16:19Tyler Crowe:But after 18, 19 times, the shine starts to wear off a little bit. I don't think it's a coincidence that we have seen the release of the Mac Mini. I think it's one of the first major overhauls of its personal computer segment in a long time, this iPhone duo, and the ascension of Ternus to the captain's chair at Apple. I know that you're saying this may be a more of an operational change with the lease thing, but this has been a little bit more of a hardware push than I think we've seen in a while. So for all the good Tim Cook did for the company and its investors, the company's track record was a mixed bag in terms of new products.

16:57Tyler Crowe:like john to your point the vision pro was a nice looking product but commercial success jury's still out so do you think like this is still early with turnus just took over the reins a couple days ago uh but do you think this is a signal that apple may strategically be changing a little bit trying to focus more on hardware improvements new hardware trying to get back to a Jobsian design, you know, new products, delight the customer from that perspective that the company had versus the operational success and the, you know, supply chain logistics and do all the things that Tim Cook did was good around the edges, but not a lot of pushing the envelope and still new products.

17:47Well, I mean, so much of what has just been talked about, I mean, Tim Cook was, these don't just launch overnight, right? I mean, a lot of this happened under Tim Cook's watch, probably with Turnus giving a lot of input. But so I wouldn't completely disassociate what we've seen here yesterday with the product release or whenever it was. I wouldn't completely disassociate Tim Cook from that. But I mean, of course, Apple does want to launch whatever the next big thing is. Of course, it wants to lead there. Of course, it wants to make the most beautiful one. I do think it's making the right move in investing in its Mac mini business, because local AI is going to be such a big trend in the upcoming years.

18:25And so I think Apple is right to refresh there. But look, I would just caution Ternus as he takes over the CEO role. I mean, Apple still does a lot of things right. Even if we're not as wowed at the product launch events that we used to be, this is still a very powerful company. It's still a company making a lot of money. And I would be careful not to tinker too much with what you have going for you. If you're going to tinker, make it a new thing.

18:50Jon Quast:yeah i'm glad john brought up the physical ai um apple's one of their biggest problems and the biggest criticisms investors have had is that they're behind the curve on ai which they are and the other side of that is saying that they're not spending 200 billion dollars a year like some of their counterparts are uh on building this stuff out uh john turnus he said uh that that the iphone is the best personal device for ai and he really emphasized that apple's record of privacy security you're really having better you know just better build quality, better, you know, longer lasting devices is the key differentiator.

19:25Jon Quast:So I'm curious to see how they're going to lean into that. Like you said, this product launch, pretty much everything was developed while Tim Cook was still in charge of Apple. So ask me again at their next big product launch, what the new direction of the company is, because that'll be the one where things were actually developed under Turnis' leadership.

19:43Tyler Crowe:Well, what's the fun of doing that if we can't make predictions, you know, a few days into somebody's tenure, right? That's the whole point of why we do this. Make predictions nice and early and see how they turn out later. Coming up after the break, we're going to dip into the mailbag.

20:01Support for the show comes from Fundrise. Investing in companies already in the S &P 500 can sometimes feel like you're being served someone else's leftovers. It's still a great meal, but it's hard not to imagine what the food tasted like when it was fresh out of the oven. But with Venture Capital by Fundrise, you can finally get in early and take a seat at the table alongside the biggest names in tech investing. Fundrise's mission is to give investors the access required to invest in the best tech and AI companies before they go public. Visit Fundrise.com slash fool to check out Fundrise's venture portfolio and start investing in minutes.

20:34All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement. They say leadership isn't just about where you're going, it's about the conviction it takes to get there. For those who demand the world and possess the drive to claim it, there's a vehicle of equal distinction. Dynamic by design and engineered for pure impact, the Range Rover Sport rises to meet you the moment you take the lead. This is the most advanced Range Rover Sport yet, a master class in uncompromised performance and unbridled agility.

21:07Inside, the innovation is seamless. You'll find an elegant 13.1-inch touchscreen that puts total control of the vehicle's systems right at your fingertips. But it's the refinement that sets it apart. Sculpted 22-way heated seating with built-in massage function ensures every journey is defined by peerless comfort. Whether it's through unique interior finishes or custom wheel options, the ways to personalize your Range Rover Sport are nearly unlimited. Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com. Hey, everyone.

21:42Tyler Crowe:Just a quick reminder. If you want to get a question read on air, go ahead and email us at podcasts at fool.com. That's podcasts with an S at fool.com. I've also left the email in the show description if you need it. Today's question comes from Evan. His thing is, I have a small stake in a micro cap drone company that is aggressively acquiring small businesses. It's done 26 in the past year, and it's one of its primary drivers for growth. For a microcap looking to scale business, how do you view acquisitions as a growth strategy? When does it become a red flag? And what are the benefits or risks associated with acquisition-based growth?