HLG - Hallenstein Glassons Holdings

[Left Field]

Good update in tough times. Basil should be happy.

https://api.nzx.com/public/announcement/457632/attachment/450695/457632-450695.pdf

[Basil]

Gosh that's a very impressive performance in FY25 trading at the bottom of the retail cycle.  Looking forward to reading the full report on 26 September and thereafter I will share my thoughts in more detail.

[Pierre]

Another great result from the HLG team, possibly assisted to some degree by the collapse this past year of so many others in the Aussie rag trade.
Looking forward to an increased final divvie - maybe 29cps in December?

[Basil]

Forsyth Barr are forecasting 61 cents for FY25.  They paid 24.5 cps in April so if Forbar are correct that's a final divvy of 36.5 cps ! 

Hat tip to Forsyth Barr, their forecasted level of sales and profit were very close to being correct.  I remember the days not long ago when I had to be my own analyst on here with no analyst coverage at all.  It was sometimes a very lonely experience, (but nevertheless extremely rewarding over the years).

Apart from the trading update itself which is deeply impressive, I liked this bit "The balance sheet for the Group remains strong with record cash reserves"

[Pierre]

Forsyth Barr are forecasting 61 cents for FY25.  They paid 24.5 cps in April so if Forbar are correct that's a final divvy of 36.5 cps ! 
 [/i]

I much prefer Forbarr's dividend forecast to my own. Let's hope they are right!

[Basil]

That brings up the old chestnut of imputation credits again as I don't especially like unimputed dividends.  I know quite some time back HLG reworked the whole head office allocation methodology process with the aim to ensure that the Australian operations carried its fair share of overhead and overheads born by the N.Z. operations were appropriate and N.Z. tax paid at the correct level on net income here.

Obviously I'm not privy to the methodology they used but I am keen for them to apply as much overhead as they can to Australia and as little as possible here to maximize tax payable here which can be passed through as imputation credits.

In the interests of trying to maximise net after tax returns, (maximise imputation credits), for all shareholders, I just flicked Cameron Alderton the CFO an email suggesting that now the Australian sales exceed Kiwi sales, perhaps they might revisit their calculation methodologies.

[Greekwatchdog]

For Bar Review

Hallenstein Glassons (HLG) reported a strong trading update, with the midpoint of its FY25 profit before tax (PBT) guidance c.+15% ahead of our estimates. Sales were broadly in line with our expectations, with the beat driven by gross margins flat versus last year, compared with our estimate of a -70bp contraction. Considering the level of promotional activity in the market, this is a strong outcome. HLG continues to execute in a challenging operating environment: its NZ businesses are maintaining share in a falling market, while its Glassons Australia business is continuing its track record of impressive growth. We think the risk–reward remains attractive: HLG is on a c.11x 12-month forward PE, we estimate an EPS growth CAGR of c.+11% over the next five years, and we expect it to pay a 7.6% FY26 cash dividend yield. HLG is reporting its FY25 result on 26 September 2025. OUTPERFORM.

What's changed?
Earnings: FY25 to FY27 NPAT increased +15%/+7%/+6% respectively.
 Target price: Increased +8% to NZ$10.80.
Another strong result
HLG guided to FY25 sales of NZ$470m, which was +1% ahead of our expectations, and profit before tax of NZ$57.5m to NZ$58.5m, +15% ahead at the midpoint. Gross margins are expected to be flat on the prior year at 59.4%. While the release was light on detail, we suspect the trend of strong growth in Glassons Australia offsetting modest declines in its NZ businesses continued through 2H25. We have increased our FY25 dividend estimate to 58 cents per share (c.+13%), reflecting improved profitability and an 85% payout.

Maintaining share in NZ and growing market share in Australia
The operating backdrop has been challenging for Australasian retailers. Stats NZ retail trade spend on apparel for the six months to June 2025 was up +2% on the prior year. This is broadly in line with our 2H25 sales growth estimates for Glassons NZ and Hallenstein Brothers (c.1%–2%). The Australian Bureau of Statistics electronic card spend on apparel for the same period was up c.+3% on the prior year. We forecast Glassons Australia 2H25 sales growth of c.+14%, reflecting market share growth and new store roll-outs.

Australian opportunity awaits
We forecast an EPS growth CAGR of c.+11% over the next five years, with the primary driver being continued store roll-outs in Glassons Australia. At its AGM in November 2024, HLG noted it could open two to five Glassons Australia stores per year. Assuming new store openings achieve similar sales per store (c.NZ$6m) and NPAT margins (c.9%) as the existing store base, and including leases, fit-out and additional inventory, the incremental ROIC for a new store opening is c.14% (current ROIC 13%, WACC 11%).

Another record result: OUTPERFORM
HLG will report another record year in sales (NZ$470m) and profit before tax (NZ$57.5m to NZ$58.5m) in FY25. This is the fifth consecutive year of record sales and the second consecutive year of record pre-tax profitability. More impressive is the operating backdrop in which it has achieved this growth, with apparel sales in NZ and Australia subdued.

On our revised estimates, HLG is trading on a forward-PE multiple of c.11x and is at the lower end of its listed retail apparel peers despite its strong growth outlook. We forecast EPS growth CAGR over the next five years of c.11%, driven by continued growth in its Glassons Australia business.

Earnings changes
We have increased our FY25 to FY27 NPAT estimates by +15%/+7%/+6% respectively. In FY25, the key beat was at the gross margin level, which was indicated to be flat on the prior year and +70bp higher than we had anticipated. Sales were also slightly better and operating costs slightly lower than we forecast. These changes drive our FY26 and FY27 earnings upgrades. We have increased our FY25 dividend to 58.0 cents (2H25: 33.5 cents), reflecting an 84% payout on our revised earnings estimate, in line with history.

[Basil]

Summary of Forsyth Barr's forecast
                    FY25  FY26  FY27
Rev (NZ$m)  469.7 507.0 537.9
 NPAT(NZ$m) 41.0  44.8  49.4
 EPS (NZc)      68.8  75.1  82.8
 DPS (NZc)     58.0  64.0  70.5
Gross Yield     8.8% 9.7% 10.7%
Very good quality research in my opinion.

Above gross yields are at $8.52 and assume 75% imputation of dividends.
5 year forward CAGR in EPS I agree with Forbar's view of ~ 11% and note that they have achieved a 5 year EPS CAGR in the last 5 years of over 9% despite all the challenges with Covid and the deep recessionary environment prevailing in N.Z.

Where I differ slightly from Forbar is my assumptions around the dividend and the level of imputation.  I think there's a good chance the Directors will want to accelerate their store rollout program in Australia, (certainly I would like to see this to ideally somewhere around 4-5 stores per year). The imputation credit level I see as averaging closer to the 50% level as the level of profitability in Australia and growth there sees the N.Z. operations becoming a gradually smaller part of overall Group sales.   Noting sales growth for Glassons Au in the mid teens percentage in recent years, it only takes 5 years at 15% CAGR in Australian sales for sales to double there, while the no growth side of the business lumbers along in N.Z.
Simply put, Glassons Au will become an ever increasingly large part of the business and you can't impute Australian tax onto N.Z. dividends.

Circa 11% EPS growth forecast for the next 5 years + and a proven track record of similar in the past and a forward PE of only just over 11 makes this a classic deep value GARP stock.  GARP in this case means both growth at a reasonable price and grab all reasonably priced shares before someone else does lol.
Fully deserves to be rerated to fresh all time high's and wouldn't be an expensive stock on its metrics by any means at Forbar's price target of $10.80..
Final thought.  By my calculations 2HFY25 profit is up just on 35% compared to 2H FY24 so the business carries very strong momentum into FY26.
Worth noting that 1H FY25 profit was basically unchanged on PCP so ostensibly all this years profit growth has just occurred in the second half.  In my opinion the best guide to the future is the most recent past so I am quite bullish on prospects for FY26.

[winner (n)]

Basil, it does seem that HLG had a great second half

No doubt most of that growth was in OZ ... prob Glassons

Clothing retail sales as per ABS grew $ sales by about 3.5% over Feb/July.

I'd say Glassons was much higher than that. Growing market share big time.

[KW]

Both UNI, LOV and CCX reported well, and are experiencing a pick up in sales.  Bodes well for HLG over there.

[Basil]

UNI the best comparative for Glassons Au.  Very similar size, very similar 5 year CAGR, very similar products.  On an underlying basis UNI earned 45.4 cps and was on a FY25 PE of 19.25  Has a 5 year EBIT CAGR of 17.3%. Recent presentation is here https://research.iress.com.au/IDS/old/20250821/02981460.pdf?uid=01B0A051E37A0158EE6B6AB21840A21B616A000096F1A127B669E640093D250091850000&ppv=
Last time I looked at this with full divisional sales and profitability data Glassons Au has a 5 year CAGR of just over 20%

[850man]

Resignation of Group CEO

The Board of Hallenstein Glasson Holdings Limited has received, with sincere regret, the resignation of its Group Chief Executive, Chris Kinraid, effective on 5 September 2025.

Chris' extensive background and senior level experience across listed retail environments has been instrumental in delivering strong growth in revenue and earnings to the Group, during a challenging economic environment. As a result, he is leaving the Group in a very strong position.

The Board expresses its appreciation of Chris and his significant contribution to both Hallensteins and Glassons and wishes him all the best for the future.


Warren Bell
Chairman

Have to hand it to Chris, he did an incredible job. HLG have weathered the retail storm very well

[Basil]

Did he resign or was he pushed ?  My opinion:-

N.Z. operations are likely to have performed very poorly.  All the growth has come from Glassons Au over the years which is James Glasson's baby and has been for over 8 years now.  I think the very short notice period of just 3 days, (if he was wanted he would have been asked to stay during the search for a new CEO and transition period in my opinion), gives a vital clue that Chris who has not been there for long was not a good cultural fit for the HLG way of doing things.

The fact is he only came on board in FY24 and N.Z. operations have performed very poorly under his stewardship.  They called him Group CEO but I think James Glasson is very much his own man and always has been.

I'm not concerned at all by his departure and notwithstanding the polite wording of the announcement I think he was asked to leave for underachievement.
Notice that there was no mention of a replacement search being undertaken.  It wouldn't surprise me at all if James Glasson took over as group CEO and tried to clean out some dead wood from the N.Z. side of the business.

[winner (n)]

Well Chris left Kathmandu ascCFO to come to HLG ...hmmm

Relocated from Melbourne  to Auckland ...maybe he's homesick

Could be on the ball Basil with James taking over the whole lot while keeping the passion for Glassons going

Interesting none the less



 

[Basil]

Could have put his hand up for a massive pay rise of expected a whole bunch of new shares issued on free or cheap terms.  That's simply not the HLG way.  They've had only 59.6m shares on issue for as long as I can remember.

On another subject they recently said they had a record level of cash on hand at year end.  Previous record was $49.9m cash as at the half year report.  Wouldn't it be cool if they had $59.6m cash on hand now, ($1 a share) and of course no debt.