Unlikely to surprise in HLG results this Friday, forecast from FB on GoodReturns yesterday.
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Unlikely to surprise in HLG results this Friday, forecast from FB on GoodReturns yesterday.
Their divvies are pretty healthy sums as well :-)
that was a good result.
going forward it looks like the slowdown is starting to impact them
https://www.nzx.com/announcements/419108
The Company advises that Group sales for the 12 months to 1 August 2023 were $409.71 million which were +16.7% up on the prior year ($351.21 million).
The audited net profit after tax for the 12 months was $31.98 million, an increase of +24.9% on the prior corresponding period ($25.61 million).
It already is - the 1H was a fantastic result - the 2H was quite poor, and that looks like continuing into FY24. A few observations.
A helicopter perspective first. Sales in the 2H were up 3.2%, while NPAT fell 18.6% over the same period. Sales for the first 8 weeks of FY24 are down 5.9%. So using the exit run rate from the 2H, when a lift in sales of 3.2% still produced a fall in NPAT of 18.6%, what happens to NPAT when the group is posting now meaningful declines in revenue? It's clear topline growth is no longer translating through to earnings growth, and from the inflationary effect on CODB there are substantial cost issues & the business is increasingly operationally leveraged, a highly undesirable position to be in with falling volumes & sales.
Case in point - 2H revenues of $186.4m were higher than in any of the preceding 5 financial years, but 2H NPAT of $11.152m was also below all those same periods. Implicitly its 2H NPAT margin as a % of sales is also now lower than the previous five 2H results.
This is despite a 180bps improvement in group GP margins achieved in the 2H, relative to the first half. In post #8895 I mused if GP margins had troughed in the first half (given freight rate movements and if not would be in the 2H) and that looks to have transpired, a positive development. That said the outlook for margin still looks challenging given the group purchases raw materials (and pays for inward freight) in US dollars, and both the NZD and AUD have depreciated considerably in the new financial year relative to 2H FY23. I would have thought the group, particularly in Australia, completed the bulk of its excess winter clearances in July (typically the biggest month for winter discounts) and perhaps some into August, necessitated by a warmer winter, so I'd expect some overall margin improvement in the new year.
So that really shines a spotlight on overheads/cost of doing business (CODB), and the growing operational leverage in the business. In the 1H FY23 result, management commented they were looking for cost efficiencies wherever possible. Despite that, CODB (including lease interest expense) still increased 9.1%. Sure, a few new stores stores since then, so on a CODB per average store basis, increased about 7.3%. If you break it down more looking at the cost segment notes, all up lease & rental expenses per average store (ROU depreciation + ROU interest + expensed short term rentals) were up about 12.9% per AS, wages up 3.9% per AS, outward distribution largely variable and consistent as a % of sales, and other CODB/average store up about 6.5%.
I wouldn't necessarily expect CODB to continue at that rate into FY24 but I don't think it will be materially less than that. Wage pressure persists in both countries (particularly in Australia), which hopefully the group can offset some by flexing and releasing casuals as demand falls (and I expect they did in the 2H FY23). Rent remains high and many of them will have references to CPI which hurts in a falling demand environment. It'll take a few years for that to fully normalise as leases come up for renewal as pressure grows on landlords to improve terms in respect of the macro environment. Rolling forward will be additional lease expense associated with new office and warehouse space taken next to the Sydney fulfillment centre that wasn't in 1H Fy23's result (a bit of an investment for the future). Insurance costs, security costs, rates are all headed in the wrong direction. HLG's board and management team are very savvy old hands renowned for being hard negotiators so I'd expect they will do a better job than most in managing the situation. That said they have a new CEO coming in from KMD, which is a much more top heavy, bureaucratic and ESG focused model so probably worth considering how that could impact on cost creep in the future.
On the demand side, a 5.9% fall in sales over the first 8 weeks of the new financial year is meaningful when you consider the impact of inflation and the monthly spike up associated with the FIFA WWC in both countries. I note that Forbar who are the only analyst covering HLG were forecasting immediately prior to today FY24 NPAT of $23.6m, and only expected sales to fall 1% in 1H FY24, so not tracking well from that perspective. To be fair their reports never really mentioned the impact of freight on GP and centred on FX so I wouldn't be surprised to see if they now revise their revenue assumptions, GP %, and adjust CODB forecasts accordingly following todays report.
The most important 2 months of the financial year are November and December which isn't far away, so one shouldn't read too much into the first 8 week run rate (up or down). Rent is high (& accelerated to a record high in NZ last month), food price inflation remains high if moderating, fuel has gone back up to very uncomfortable levels, student debt interest is increasing, parents mortgages are increasing as they roll off fixed terms, and unemployment while very low will probably only go in one direction. You'd have to do some mental gymnastics in order to rationalise a positive retail demand picture. A new Glassons AU store in scheduled for opening in December (most of the way through 1H), and probably another one in the 2H if history is any guide, but with ~119 in the network the margin gain from individual new store openings is diminishing.
The most positive thing in the 2H result from my perspective was the implementation of transfer pricing & its positive impact on imputation credits and theoretical lowering of future effective tax rates. Early last year I commented on this thread that they should implement one - nice to see it being actioned
That's a real tangible improvement and well done to management for implementing it. And that they retained the 24cps dividend which was a gimmie given they underpaid in 1H and brought the full year payout to 89.5% (FY18 to FY23 average payout of 90.3%).Quote:
The gradual erosion of imputation credits is an issue for dividend loving kiwis but there is one partial solution to it that could be implemented, transfer pricing.....multi jurisdiction retailers give regard to (with high levels of outside professional advice) a transferpricing policy that ensures the appropriate level of profit earnt and tax is paid where the bulk of the underlying value creation occurs. IE, the design, procurement, marketing, and financing functions....Glancing at the FY21 stat accounts it appears Glassons AU has slightly better GP margins than Glassons NZ - that signals no transfer pricing arrangement as any inter company fees to recover those vital functions would normally be borne in COGS and dimish gross profit margins....I've had a brief glance through linkedin and it appears the majority of glassons non retail staff (ie design, procurement, marketing & finance) are in NZ (but certainly not ALL of them - James Glassons is in AU for instance).From a tax perspective this would do 3 things. It would lower HLG's tax risk in NZ as it could be argued HLG should be charging more for some of those services. It would increase the tax paid in NZ. And it would increase the imputation credits available to HLG's overwhelmingly NZ shareholder base.
Anyway - one long TLDR muse from me - all my opinions & initial reactions only. Retail an increasingly volatile beast so critical to do your own research and come to your own view.
Share price went by more than the divie ….must like the outlook …..good eh
Sellers building up and not many buyers. My T/D matured yesterday and looking at that 8.3% yld and 10.78 pe and 24c ex div in 7 weeks. Am keeping a close eye on this one and ready to jump back in as soon as all the sellers have dried up.
Buyers building up. Sp up in last couple days. Anybody wanting to sell at under 5.80c we are here and waiting. Good test for person selling 20,000 at 5.95 do they really want to sell or is it what I call an accumulation block. the divi chasers might be coming soon. 8%+yld here we come ;)
Did this cool post but wrong thread lol bye
nice.
my macro view is aus labour market is really starting to soften now , possible more rate rises before yr end , retail turnover has been declining all yr and if you consider immigration is very high take this out and its a big slowing , savings are starting to decline too now just like in the US
AS mentioned on Stock Talk about an hour ago, HLG sp creeping up 25c in last 3 weeks. If anyone out there wants to sell any, there are 3 others waiting to buy in the $5.89 to $590 bracket. 24c ex div in 4 weeks and another div 16 weeks later. :)
Oh dear, looks like I have to pay over $6 now :mellow:.
Stats nz Electronic Card Spend for October
apparel, down $7.1 million (2.1 percent) On September number
Jeez, the Yanks would say that’s an annualised fall of 25% ..ouch
HLG might be suffering a bit
Retailwatch shows October's NZ apparel sales down 9.1% on October last year, so Stat NZ credit card stats not a rogue result. While Black Friday has gotten bigger ever year I reckon more people that usual held off buying in October with the intention of buying during the November sales so really need to take Oct/Nov together rather than drawing too many conclusions from the sheer level of the spending decline. Even if there is a bounce back in November there will be consequences at the margin level
Over in OZ Universal Store gave a trading update yesterday. FY24 Same store / like for like sales are down 6.4% YTD, although the decline narrowed to -4.4% over the last 7 trading weeks.
Read CommBank IQ's Q3 retail report...tagline "Young customers are most impacted". Fascinating reading that lines up with what I'd been warning about with respect to the impact of rent, student debt, food, fuel costs on the youth customer in Australia.
Q3 Spend Per Capita by Age Group
18 to 24: -1%
25 to 29: -5.1%
30 to 34: -1.9%
35-39: -1.1%
40-44: 0.2%
44-49: 0.9%
50-54: 1.5%
55-59: 3.5%
60-64: 3.7%
65-69: 4.8%
70-74: 5.9%
75+ 8.1%
With CPI of 5.2% during the quarter only 70 years and above have actually increased consumption. Mid 20 year olds have reduced consumption by 10%.
Many regional drivers at play. Spending in Victoria the weakest followed by NSW. WA, NT, and Tas performing better.
Recession? LOL. I didn't see any recession at Sylvia Park in the weekend. All I saw was 1000s of people shopping. Hallensteins weekend turnover was approx Fri $50,000, Sat $47,000 and Sun their target $37,000 but I left there at 2pm. Glasson's were doing better... Approx $60,000 Fri. and they were meeting there targets on Sat and Sun, which I assume would be approx $60,000 per day. Probably due to Black Friday and leading into the Christmas shop. All will be revealed good bad or average in two weeks at AGM 12/12/23, not to forget ex div. of 24c next week 7/12/23 :t_up:
big fall in apparel :scared:
Proffit says a closer look at the retail sectors shows annual spending growth so far in December ranged from a positive pattern for Bookshops (+1.7%), Toy/Gaming stores (+2.4%) and Chemists (+8.2%) to negative patterns for Clothing/Footwear stores (-9.2%) and a large grouping of Hardware & Furniture merchants (-6.9%).
https://www.scoop.co.nz/stories/BU23...il-sectors.htm
The drop in spending might be beneficial for HGL.
Just depends how much "trading down" compared to "trading out"......
Good luck all holders. I couldn't help myself and must be a gambler and bought more yesterday under $5.56 :)
For Bar Review
We upgrade Hallenstein Glasson (HLG) to NEUTRAL from UNDERPERFORM as HLG is trading in-line with our valuation after a recent derating in the share price, reflecting market acceptance of a more subdued near-term earnings outlook. At its annual shareholder meeting, HLG's 19-week FY24 trading update (to early December) indicated group revenue declined versus the prior period, noting a slight improvement since the last update in October. This is in-line with our thesis that HLG is affected by challenging macroeconomic conditions for consumers, and market expectations have softened. HLG now trades near the middle of its retailer peer group, and in-line with its long-run median PE multiple. While we still expect further mid-single-digit year on year revenue declines through to mid-2025, and acknowledge a very challenging near-term operating environment, risk-reward appears more balanced as: (1) self-help actions are available, and (2) the Glassons Australia expansion opportunity remains intact.
What's changed?
Earnings: FY24–FY26 underlying NPAT slightly reduces by -2% to -4%, primarily driven by foreign currency movements
Target price: Reduces to NZ$5.40 from NZ$5.45 (~-1%), reflecting near-term earnings reductions
Rating: Upgrade to NEUTRAL from UNDERPERFORM.
Revenue decline in-line with our expectations
Group revenue for the first 19 weeks of FY24 dropped -4.7% (FB 1H24E: ~-4%) versus the prior period as consumer discretionary spending was affected by cost of living challenges. This theme is consistent with ANZ retailer peers' performance. Trading has improved from the start of the year when a warm winter affected seasonal product sales. HLG noted a more positive reaction to the new season range but uncertainty remains high, with three of the four largest trading weeks of the year yet to go.
Gross margin resilience primarily supported by supplier renegotiations
HLG noted an improvement in the year-to-date group gross margin despite a higher USD exchange rate. This was driven primarily by: (1) supplier negotiations, and (2) normalising freight costs. The gross margin recovery appeared to be relatively stronger in the NZ businesses (Glassons NZ, Hallenstein Brothers). We anticipate gross margin pressure reduces marginally as forward exchange rates have improved slightly since our last earnings revisions, but a lower NZDUSD forward rate is a net negative for margin growth.
More imputation credits going forward
A reallocation of intercompany charges should increase imputation credits available for NZ tax resident shareholders (we estimate an average ~75% imputation rate over FY24–FY26).
HLG now trades in-line with our valuation
We upgrade HLG to NEUTRAL from UNDERPERFORM. Following recent share price weakness, HLG now trades in-line with our valuation and the market appears to be more realistic in its expectations for near-term earnings. Further downside risk to revenue in the near term may be partly offset by: (1) a faster than expected roll-out of Glassons Australia, noting a management target of ~50 stores within three to four years versus our forecast for 44 stores by FY27; (2) Hallenstein Brothers showing signs of a turnaround after adjusting its product range; and (3) improved gross margins due to Glassons supplier renegotiations (which is offsetting NZD weakness), and normalising freight costs.
Our target price reduces marginally to NZ$5.40 (~-1% from NZ$5.45), reflecting a -1% reduction in both our relative multiple and DCF valuations, both driven by slight earnings downgrades.
Lot of down talk last few weeks. Anyone else get back into HLG from the one year low of $5.10 to $5.30 bracket. Good on you if you did.
A nice small tight share register .. a sniff in by any of the large funds could seriously pop the SP lid off the HLG jar IMO :)
https://www.nzx.com/announcements/426618
Trading Update and Profit Forecast
The Company advises that unaudited total Group sales for the six-month period ended 1 February 2024 were $223.0 million, compared to $223.3 million in the prior corresponding period.
Group unaudited net profit after tax (NPAT) is projected to be in the range of $21.0 million to $21.5 million, an increase of approximately 2% over the prior year ($20.8 million).
The balance sheet for the Group remains strong and stock levels continue to be well controlled contributing to improved gross margin for the half.
A full announcement with six months financial statements including dividend declaration will be released to the market on 28 March 2024.
Chris Kinraid
Group CEO
Great result in current climate!
Amazing update from HLG
Sales about the same as pcp and profit up
I should not have thought the worst
A very robust result - trading must have roared back from 14 dec to end of January! Impressive
can't underestimate swifty
none the less a good pick up in aussie retail last month
https://kepleranalytics.com/week-ending-18-02-2024/
https://www.westpaciq.com.au/economi...ker-15-02-2024
likewise good pick up in glassons.com aussie traffic on pcp ( a good leading indicator)
disc: holder
Hi, been a while since I looked at HLG. Impressed with how they've weathered the storm. Potential of Glassons Australia continued rollout to give them solid growth - while still trading on deep value CF multiples. But seems slow atm. What are your expectations for Glassons store openings over the next 3-5 years ST members? (Any broker eps projections also appreciated)
My 2cents is that there will be continued methodical rollout.
Continued sensible capital allocation to store rollout and high dividends to shareholders.
Company has been around for 90 years and will continue to be around for next 90 years.
So my guess is there won’t be a rapid expansion of 100 stores in 2 years type thing
Indeed.
RE GLASSONS AUSTRALIA GROWTH POTENTIAL:
It's interesting to see that although the Australian store rollout has been gradual - from 30 stores in 2018 to 36 today, sales growth has been exceptional, with good margins:
2018 $78m 2019 $89m 2020 $97m 2021 $134m 2022 $157m 2023 $191m
(NPAT $17m cf Glassons NZ 35 stores, sales $112m, NPAT $11m; Hallensteins 45 stores, sales $106m, NPAT $4m).
The interesting question for me is what Glassons Australia sales and npat could be in 3-5 years? Presumably growth in sales per store will plateau given already much higher than NZ, with rollout adding possibly $1m pa to npat over decades given 5x population in Australia and economies of scale?
Complete guess...would anyone more familiar with the company care to comment and do some crystal ball gazing?
It looks to be still up trending for the last 10 weeks, from the low of $5.10 on Wednesday 3/1/24 at 10.30 am. The sp closed at $5.22 the same day and is now knocking on the $6 door. It might have something to do with the div announcement coming up on Thursday 28/3/24 which I am forecasting to be in the range of 22c to 24c but will not be surprised if it was held as the last one of 24c.:t_up:
Wow it just hit $6.10. Now up $1 from 3/1/24. :)
DarkHorse buying up big
at the end of FY17 Glassons AU had 28 stores - now they have around 36 - so around 1.5 net new stores per annum. Covid probably slowed the pace of new store openings. In the last two financial years they have really focused on renovating and expanding their existing stores in Australia and spent considerable capex doing so and at this half year period probably mostly done with the Australian store refresh & extension programme, and could possibly turn their attention to more rollouts. At the AGM at the end of last year if I recall correctly there was a comment made about a store # goal over the next few years (can't remember exactly what it was) but it implied - if it was true or I heard correctly -a pickup in new store openings in the near/medium term. The Board appears to be conservative on new store openings, more so than James Glasson (CEO of Glassons AU), and don't know where the new group CEO sits yet. The store outlook in NZ for both brands is flat to probably net declining in the near term as trading conditions languish on this side of the ditch.
have picked up a few positions in retail stocks again this year incl. HLG acquiring a respectable holding in mid february, to compliment the Uni share I bought (again) last year which have been on a tear. I expect HLG's GP margins will have improved 200-300bps on last year's 1H with lower freight prices and a (slowly) stabilising fx environment. CODB inflation per ave store looks to have slowed in 1H as the business likely had some one off costs in 2H FY23 and undertook some cost management. The new transfer pricing policy a big help too (something I encouraged the business to do two years ago), should result in the average effective tax rate dropping from 29.4% last year to ~28.5% this year (a 500-600k increase to NPAT pa) but more importantly will allow much improved levels of imputation credits available going forward (assume ~75% imputed vs 56%, 0%, 53% across 1H FY22, 2H FY22, 1H FY23 respectively).
that said the trading outlook is inconsistent and patchy across both geographies. NZ we read about, and australia has benefitted in the last 12 months from an unexpected surge in migration particularly amongst students. I saw a report that spending by international students accounted for more than half of AU's economic growth in 2023, which warned that the new sharp increase is visa refusal rates will be a headwind to growth in 2024 across retail and the wider economy. A new migration policy was released in December that called for a 38% reduction in migration going forward.
so going forward hard to predict - lots of positives and negatives - but that's the way isn't it.
few other bits and bobs people may find of interest
* Glassons NZ google search trends (rolling ave 4 weeks): down 8.5% on prior year
* Glassons AU google search trends (rolling ave 4 weeks): up 7.6% on p/yr (declining from +20% last Jan.)
* Glassons Similarweb traffic rank for Australian Fashion & Apparel in Feb24 up to 20, vs ~25ave over preceeding 12 months
apparel retail in AU remains as competitive as ever. Perfect Stranger & supre growing strongly, princess polly holding steady. Temu and more relevantly Shein having absolute break outs in the industry - shein on track to do A$1bn in sales in australia in the coming 12 months. slightly different product offering but close enough and value focused.
flash industry data - first few weeks of March have been reasonably tough - highlighting the inconsistent trading environment. plus swifty tour done!
https://kepleranalytics.com/week-ending-10-03-2024/
https://www.westpaciq.com.au/economi...r-1-march-2024
Thanks Muse, I appreciate your helpful insights. Obviously HLG has pretty good cashflow for the price, so whether they can get a good ongoing ROIC through Glassons Australia rollout is the key question for long-term prospects. Haven't bought any yet though - stocks always rise while I contemplate buying - and fall while I consider selling!
https://www.nzx.com/announcements/428314
CEO selling half his holding. hmmm
Was at Melbourne Central on Saturday, shopping for my teenagers.
Every women’s clothing outlet had a minimum of 20% off… except Glassons, which had nothing advertising a sale.
At or around 10:30am, there were between 0-1 customers in all women’s clothing stores… except Glassons, where there were 6.
It was an interesting contrast…
https://www.nzx.com/announcements/428724
Great Results and super well managed company ...No doubt !! Very impressive
PS : Only problem ....they called themselves HGH on Top of results ...hopefully. they dont want to become one ...lol
Wow ... great start to 2nd half of year
Group sales for the first seven weeks +8.3% ahead of the same period last year.
Along with a 24 cent divie this news should put a rocket under the share price
HLG and BGP performing so well in these hard times compared to WHS, KMD & MHJ
Good result, albeit saved by a gross margin expansion of 235bps (had GP% remained the same NPAT would have been $17.4m all else equal).
Flat sales but not a bad result in this environment, and some variation within the group. Hallenstein sales per average store down 0.6%, Glassons NZ down 4.4%, Glassons AU up 1.2% or around 2.7% in AUD (average FX moved unfavorably from the PCP). Other income (rent received and interest income) up $392k.
GP margins the main story here. Lower freight costs probably the biggest driver (and have gone up a bit post balance date with all the bother in the middle east), but mgmt also make reference to some proactive steps they've made on sourcing (& probably pricing). This is most evident in Hallensteins although all divisions made gains on 1H FY23, and both Glassons AU and Hallensteins margins were higher than 2H FY23 which was the period when the uptick began. Glassons NZ while on 1H23 improved saw their margins decline from 2H FY23 (although its margins traditionally fall from over this period), and are a bit of a niggle for the group, experiencing long term declines. The chart below tells a good story. Glassons AU looks to be running where it should be, Hallensteins not far away from where it should be, but Glassons NZ still well below its historical margins. They'll be reasons for that but I won't speculate on it here. 2H margins tend to be a bit higher than 1H as well all things equal, particularly for Glassons NZ.
Attachment 15013
Cost of doing business (incl. lease interest) per average store up 5.2%, however a decline from the 2H FY23 rate of 8.2%. The main driver to that is total occupancy costs (all up rental and lease expense) per ave store up 7.8%, largely reflecting continued store growth in Australia where the stores are larger and a refurbishment programme that seems to be expanding the average size of the stores. I forget when the 2nd AU distribution centre was launched so maybe a bit of that as well.
Tax expense as % of PBT 29.2%, only a smidge down on prior year 1H of 29.4%. Would have expected more of a decline given the transfer pricing programme bringing AU profits (where corp tax is 30%) into NZ where it is 28%. Probably reflects the underlying deterioration of Glassons NZ and Hallenstein profitability in NZ.
Cashflow was excellent, stock down, and cash up. Inventory looks very lean and while I love the inventory turnover wouldn't be surprise if it corrects. Capex (store refresh and refits) high at $9m.
Dividend identical to last years, both in terms of declared, IC's attached, rwt deducted, and thus gross and net. With regard to the level of imputation, there appears to be a mistake in either the mgmt commentary or the dividend notice. The mgmt commentary says imputed at 45%, the distribution notice implies a 53% level of imputation (section 3 of dist. notice talks to 14.87%, which divided by 28%, is a 53% level of imputation). This is the same as last year 1H FY23. Recall that in 2H FY23 the level of imputation rose to 80.6%, giving a full year imputation of 67.5%.
In terms of outlook, I reckon a good placeholder is ~$11m npat for 2H FY24. February and March, while well up at ~8.3%, are not big trading months in the 2H. February traditionally the weakest month (of February to July), and March a little bit below average. So a lot of water to go under. But a good start.
Last year's 2H dividend of 24cps (and similar imputation profile) a reasonable proxy to work with as well. That would imply 48dps declared, 11.2cps of imputation credits (though there could be some downside risk to this if last years imputation did not prevail), giving 59.2 gross, with 8.3cps of RWT deducted (which will flex up if 2H ICs dont come through).
Just my thoughts. Do your own research, & come to your own views. Retail remains a fickle beast.
Muse ….good stuff there
Glassons AU increased market share as well
The 45% partially imputed comment comes from computation credits of only 4.2 cents being applied instead of a full 9.33 cents if they had enough credits…. So 4.2/9.33=45%.
Suppose how you interpret the words ‘partially imputed’ but they haven’t made a mistake.
yes got it now. I had calculated in haste the level as 14.87%/28% = 53% giving the level imputed. But adjusting the formula to gross up, would have taken ICs per share to 9.333333cps, taking gross dividend to 33.3333. and thus the 4.2IC/ps divided by the 9.33333 is the 45%. got it.
You confuse, Muse.
None, absolutely none, of the calculations with the impute, or associated, word near by take any account of any Witholding Taxes.
Clear you mind, chant a few oms, and PM me if you still can not see the true way.
Four and a half trading days before 24c ex div next Wednesday 10th April:).