HLG - Hallenstein Glassons Holdings

[seaweed]

Oz retail stats December month

Clothing, footwear and personal accessory retailing fell 5.7%

What is your forecast for HLG div? Maybe a 15% to 20% drop?

[winner (n)]

What is your forecast for HLG div? Maybe a 15% to 20% drop?

Full year ~24 cents

[Basil]

April divvy 15-18cps in my opinion.

[seaweed]

Full year ~24 cents

Wow that is a 50% drop. I am hoping for a 18c to 20c div. for April.

[LoungeLizard]

I'm thinking that the April divvy will be 18-20c, with an outside chance that it may stay at 24c. We know that the first 19 weeks sales were down 4.7% but gross margins were ahead of the previous year, so perhaps NP will not be down as much as some think. And the Black Friday sales period went well apparently. So I think the HLG management will try and maintain the interim divvy as much as possible. End of year divvy will tell the real story but if OZ operations hold up then 40c for the year is possible.

[winner (n)]

April divie could be in excess of 20 cents ...irrespective of profit they will resort to the old 'we have a strong balance sheet and confidence in future performance' trick ......and so it will be 20 cents

But can't see it as I reckon half year earnings could be 20/21 cents per share

[Basil]

I think you're not far off the mark with that earnings estimate Winner. They have paid out 100% of their earnings in the past but you have to wonder how that would currently fit with their stated intention to develop a lot of new stores in Australia in the next few years. 

[LoungeLizard]

I think you're not far off the mark with that earnings estimate Winner. They have paid out 100% of their earnings in the past but you have to wonder how that would currently fit with their stated intention to develop a lot of new stores in Australia in the next few years. 

HLG have a long history of expanding it's footprint whilst maintaining dividends (ie the growth has been self funded) so I'm surprised by the idea that opening 2-3(?) stores in OZ this year will have such a big effect (EPS cut by over 50%)?

I may be wrong, but I really can't see divvys been cut anywhere near what is being suggested. That would be a huge dent in the image of HLG being a strong, consistent dividend payer and the SP would plunge accordingly. 

[Basil]

Winner talking half year earnings mate.
https://www.marketscreener.com/quote/stock/HALLENSTEIN-GLASSON-HOLDI-6495564/finances/
eps estimate for next 3 years 38, 43 and 48 cps
dps estimate for next 3 years 34.5, 39 and 43.5 cps.

I'm sticking with my estimate of April divvy being 15-18 cps.

Don't hold at present but as stated recently I think the shares are about fair value at $5.40.
Cost of doing business always on the rise.  Minimum wage going up to just north of $23 per hour on 1 April, just one example.

[LoungeLizard]

Winner talking half year earnings mate.
https://www.marketscreener.com/quote/stock/HALLENSTEIN-GLASSON-HOLDI-6495564/finances/
eps estimate for next 3 years 38, 43 and 48 cps
dps estimate for next 3 years 34.5, 39 and 43.5 cps.

I'm sticking with my estimate of April divvy being 15-18 cps.

Don't hold at present but as stated recently I think the shares are about fair value at $5.40.
Cost of doing business always on the rise.  Minimum wage going up to just north of $23 per hour on 1 April, just one example.

Ah, my mistake. I still reckon that HLG will pretty much maintain full year divvy - perhaps 40c. We'll see. Likewise no longer holding, but might buy in for both the divvy and the growth prospects if OZ expansion goes well.

[Basil]

Ah, my mistake. I still reckon that HLG will pretty much maintain full year divvy - perhaps 40c. We'll see. Likewise no longer holding, but might buy in for both the divvy and the growth prospects if OZ expansion goes well.

The biggest problem I have with HLG is TRA.  Both very good well managed companies but put HLG in the same FY25 prospective PE as TRA and it comes to $4.20.  In relative terms TRA is much cheaper and just as well run.  The other issue is this.  TRA has an eps CAGR of 7% per annum over the last decade whereas HLG doesn't and is more cyclical, less resilient in a downturn and is growing slower so to my mind in terms of a retail stock, if you can call TRA that, it's still exceptionally cheap taking into account their proven growth rate.  TRA closed today at the same price today as index inclusion.  Hard to keep a good stock down eh   HLG on the other hand is still a long way below their index inclusion price of (from memory), $6.85 and that was May 2023, 8 months ago!

[Fiordland Moose]

Picking the interim divy a bit more challenging than picking EPS, given the interim divy has historically been more volatile and flexed up and down by mgmt.

FY18: 20dps (100% imputed), 78.8% payout ratio
FY19: 20dps (100% imputed), 74.4% payout ratio
FY20: 15dps (100% imputed), 58% payout ratio
FY21: 23dps (100% imputed), 69.1% payout ratio
FY22: 18dps (56.1% imputed), 90.1% payout ratio
FY23: 24dps (53.1% imputed), 68.7% payout ratio
1H dividend payout ratio average: 73.2%
It's my guess dividends will be imputed roughly 75% with that tracking down marginally over time given the mix of trading, based on the new transfer pricing policy.

Obviously some funky covid impacted years in there, but shows mgmt use their discretion in 1H more so than in 2H.  HLG tend to payout 113.8% in the 2H (and have stuck to 24cps in recent years, though I think that is under threat), bringing average payout over the last 6 years to 90.3% (as low as 83.8% in FY21, as high as 98% in FY22).

As W69 says they have surplus cash they could tuck into to support payout. They ended FY23 with $32.5m, less the FY23 final div of $14.3m, is $18.2m...plus the net cash they generate in 1H FY24, so will continue have a high cash at balance date to payout for a div. The store opening regime that they've signaled this year has been pretty muted...a hallenstein pop up store at Rabina / gold coast & closed the blenheim glassons store in 1H. I dont think any new AU stores in 1H but in 2h last confirmed for 2 new.


HLG opened around 0 net new stores in FY23, with closures and openings offsetting each other. But they spent a truck load in capex, with the capital consumer being refurbs and expansions. $14.8m in capex, up from $8.3m the prior year. Refurbed 13 stores in FY23, 8 in oz and 5 in NZ, with 11 of those refurbs taking place in the 2H. As at the AGM was aware of 5 refurbs in 1H (but these things will change).


There is a bigger story here on the refurbs than most appreciate. Obviously a retail outlet needs to be refreshed every so often (and a retailer will even contract up to how often they refurb within the term of their tenancy at a mall), but HLG's approach over the last 5 years has been more meaningful. First its gone hand in hand with a repositioning of the Glassons brand, which was very successful. The second was to increase the physical footprint where possible, taking on adjacent properties or shifting existing stores to nearby locations with bigger footprints. More stock and product was available to be sold and the shopping experience enhanced, and sales per average store rose as result (unfortunately it appears incremental costs per ave store have risen faster than incremental revenue in the most recent period, per below).

The group has been using the same approach in aussie and pushing it into Hallenstein and Glassons NZ stores, but with less success from what I understand.

But, as always, topline is only a part of the story. That enlarged footprint carries an extra rental expense, staffing expense, utilities insurance expense, etc. I think it wise to ponder too for those recent historic refurbs where they have expanded the footprint - and were executed at the peak of the cycle in Australia - may have triggered an increase in the rental price per square metre of store already under lease. Reason why I wonder this - in 2H FY23 - their all up lease/rental expense (expensed ROU depreciation + expensed lease interest + expensed short term rentals) per average store increased 14% year on year. So you have to hope that mgmt got their business cases right for these newly expanded stores that they've invested so heavily in, because while its increased revenue - 2H FY23 revenue was the highest on record - its 2H earnings were likewise lower than all the previous 5 financial years, and lowest NPAT margins over that period - an unusual combination. Some of that will be from margin (FX and freight) and natural inflation, but a lot of that will be because they grew the footprint and expanded their cost base over and above the rate of industry inflation - only in my view, of course.....

[Fiordland Moose]

re the last line above - rather than be definitive that the excess growth in CODB/per store above inflation was due to growth in the footprint - should just put it down as one of the likely possible causes. From the outside it's always pretty tough to know. There was a lot of business building going on last year - a 2nd distribution centre in Australia (which will be in lease expense), the appointment of a CFO for the first time, recruitment fees for a new group CEO, etc. Necessary things to accommodate future growth but mute short term profitability.

and one thing I really like about HLG/BGP is they don't normalise the numbers or even shout out some abnormal costs ie the extra consultancy fees associated with reviewing the new distribution centre, recruitment fees for new executives. That contrasts sharply with their WHS/KMD/MHJ et all compatriots. I think its safe to assume there may have been some one off type costs in the 2h that won't roll forward.

[KW]

Don't hold at present but as stated recently I think the shares are about fair value at $5.40.
Cost of doing business always on the rise.  Minimum wage going up to just north of $23 per hour on 1 April, just one example.

Does NZ still have penal rates? ie. time and a half on Saturdays, double time on Sundays.  I remember overhearing a kid on a tram in Australia years ago talking about how she made $40 an hour working in a shoe store because she worked weekends so got penal rates and casual loadings.  Imagine that now the minimum wage is $23 an hour instead of $17.

[KW]

There is a bigger story here on the refurbs than most appreciate. Obviously a retail outlet needs to be refreshed every so often (and a retailer will even contract up to how often they refurb within the term of their tenancy at a mall), but HLG's approach over the last 5 years has been more meaningful. First its gone hand in hand with a repositioning of the Glassons brand, which was very successful. The second was to increase the physical footprint where possible, taking on adjacent properties or shifting existing stores to nearby locations with bigger footprints. More stock and product was available to be sold and the shopping experience enhanced, and sales per average store rose as result (unfortunately it appears incremental costs per ave store have risen faster than incremental revenue in the most recent period, per below).

The group has been using the same approach in aussie and pushing it into Hallenstein and Glassons NZ stores, but with less success from what I understand.

But, as always, topline is only a part of the story. That enlarged footprint carries an extra rental expense, staffing expense, utilities insurance expense, etc. I think it wise to ponder too for those recent historic refurbs where they have expanded the footprint - and were executed at the peak of the cycle in Australia - may have triggered an increase in the rental price per square metre of store already under lease. Reason why I wonder this - in 2H FY23 - their all up lease/rental expense (expensed ROU depreciation + expensed lease interest + expensed short term rentals) per average store increased 14% year on year. So you have to hope that mgmt got their business cases right for these newly expanded stores that they've invested so heavily in, because while its increased revenue - 2H FY23 revenue was the highest on record - its 2H earnings were likewise lower than all the previous 5 financial years, and lowest NPAT margins over that period - an unusual combination. Some of that will be from margin (FX and freight) and natural inflation, but a lot of that will be because they grew the footprint and expanded their cost base over and above the rate of industry inflation - only in my view, of course.....

They seem to be moving away from this.  They have surrendered the large flagship store in Chch CBD, and moved Glassons into a store next door which is one third the size (they effectively swapped with Mecca) while Hallensteins has been moved to a separate store which used to be Lululemon's but they moved out to a space that was double in size. 
https://www.thepress.co.nz/nz-news/350070353/big-brands-vie-spots-city-mall-fills