Originally Posted by
Fiordland Moose
Full year still positive & underpinned by the first half, but rather than 'ruined' lets say the year was one of two halves...or maybe more relevantly the later half was one of two distinct quarters. I suspect in Q3 looked pretty decent from a topline % growth on the prior year perspective where ragtraders were pretty hard hit. Run rate faltering a bit but still posting decent comps. Then the last quarter of the year things started to briskly unwind.
The business probably enters the new year with a lot of external pressure attacking different parts of its P&L concurrently. Falling youth consumer spend at the same time there is a lot of pressure on overheads. Previously I had wondered from a GP margin perspective if they didn't trough in the first half of FY23 they might the second. I'm assuming freight costs are included in COGS & above GP and they have come back quite a bit over the last 12 months and particularly in the last half and ought to compensate for higher unit costs, shrinkage (theft), promotional activity. And FX did improve this year (but recently fell back into the gutter) so will be interested to see the accounts on if the fall in GP was arrested in the second half. But entering the new year FX really is at its worst level for both the NZD/USD and AUD/USD for several years except for a month and half period around October last year, and given they purchase stock in us dollars it's an unwelcome change and potential impact to margins.
Topline, margin, and then CODB as the final piece of the puzzle on how profit drops down. Australian margins shine through but there are growing pressures on labour cost for its stores & its a bit of a worry for Glassons AU and the wider retail industry. I'll be keen to see the allocation the CODB and the brand P&Ls and how that involved in the 2H because the growth amongst them hasn't been similar. For instance, in 1H the NZ brands did really well at the topline (hallensteins in particular), in absolute dollar terms, and gross profit dollars likewise quite strong even if the margin wasn't flash. But drop down to NPAT was pretty poor and that can really only be explained by CODB, and its the NZ results that provide that all important imputation to the dividends. and for NZ dividend investors that is really meaningful and if the imputation level keeps falling and gets stuck in the ~30% level for the forseeable future you may as well just be investing into an AU company receiving unfranked dividends.
So you've got a cost issue in NZ and a maybe bit of a brand health issue (whereas AU's brand is more or less in its prime). I suspect there may be some rationalisation of the store network in NZ to help address because I don't think there is a lot of fat you can take out of the business otherwise. Store staff are often casuals and you ought to be able to flex that with revenue but the business runs pretty lean and efficient as it is some I'm not sure it can release labour to the same degree as some of other retailers. The second issue is I think there are probably some costs that need to go into the business to take it forward (ie the new CFO, room for other execs). There is a new CEO coming on board from KMD which operates more of a corporate (& ESG) structure so can't discount the risk more overheads go into the business which could offset some of the gains gotten through tinkering with the NZ network. I'd imagine fast fashion is high pressure enough as is but given the level of turnover in execs (~5 group or divisional CEO's have resigned in as many years) you do wonder a bit about burnout and sustainable its structure is.
Hopefully youth apparel spending stabilises and maybe lifts later in the year or early next year. I imagine a lot of revenge travelling has sucked up a lot of available funds but then again maybe there is still pent up demand that will be released as airline prices fall from their ridiculous levels (but that is just a timing issue IMO). So things could stabilise from that perspective absent a meaningful rise in unemployment which remains a possibility. But sadly the picture on overheads is pretty challenging for the next few years...insurance and security, rampant per hour labour inflation (& if it does moderate it doesn't fall), and the rental picture less clear but in the short time remains a challenge as rents set in the last 12 months have seen landlords try to clawback some of the concessions they gave during covid. But terms written for new leases should improve later as landlords see more tenants struggle.
Glassons AU probably open a store or two every year and don't see that changing in the short term. Be interesting if the new CEO is more ambitious on rollout or goes with the flow. The time these stores take to reach maturity and the payback on the invested capital (stock plus fitout net of landlord contribution) is pretty impressive in normal times.
anyway - just my musings based on what I've seen and heard.