HLG - Hallenstein Glassons Holdings

[lorraina]

One thing I admire HLG for is their clean set of accounts and reporting. No normalisation crap, just straight forward reporting.

KPI performance metrics are very consistent over the years

Gross Margin % generally about 59%/60% 0f sales ....stock turns world class .....employee costs consistently about 18% of sales and occupancy costs about 9% of sales ... all through good and not so good times.

All comes to Profit Margin of about 9% +/- a bit

To me all signs of good management

Keep on doing that and growing sales the future looks bright

Occupancy costs of about 9% of sales surprises me.
I would have thought Malls would have them up over 15%.\
Perhaps HLG strong online sales help to reduce this figure.?

[Fiordland Moose]

I've emailed the CFO for some more colour around the prior period adjustment for tax of $1.869m, see note 6.1.  Will update you guys when I hear back.  That's worth 3.1 cps and as it clearly relates to prior periods that takes diluted EPS to 69.2 cps and trades on a historical PE of 12.9.  5 year EPS CAGR is 8%, (eps was 47 cps in FY20)

will be good to have some certainty on that...2H FY25 had tax expense of 35.8%, and full year of 32.4% - when without the adjustment they are 29.2% for both, respectively. Note in FY24 there was a prior period adjustment (a positive of 427) so could just be one of those things that swings about and we should assume nil adjustments for most years. I wondered if it could be a wash up of all the corporate restructuring undertaken for its previous transfer pricing activities and last years removal depreciation on commercial buildings. I note the tax rate and its impact on NPAT was the only miss relative to analyst and market expectations and very hopeful its just a one off this year as a full year tax rate of 32.4% is a big drag on npat and potential dividends vs something like 29.2%....

Wish HLG could just make brief mentions of things like this in their press release to the market - doesn't take long - and provides more colour.

I suppose the imputation level was a surprise to some but I think we need to reset our expectations that, potentially. It seems logical that as more profits are produced in Australia that the level of imputation will grind down over time (unless the transfer pricing allows profits brought back into NZ can scale alongside AU activity which we dont have much colour on). Have to take the bad with the good. 

[Fiordland Moose]

a picture tells a thousand words

[Basil]

will be good to have some certainty on that...2H FY25 had tax expense of 35.8%, and full year of 32.4% - when without the adjustment they are 29.2% for both, respectively. Note in FY24 there was a prior period adjustment (a positive of 427) so could just be one of those things that swings about and we should assume nil adjustments for most years. I wondered if it could be a wash up of all the corporate restructuring undertaken for its previous transfer pricing activities and last years removal depreciation on commercial buildings. I note the tax rate and its impact on NPAT was the only miss relative to analyst and market expectations and very hopeful its just a one off this year as a full year tax rate of 32.4% is a big drag on npat and potential dividends vs something like 29.2%....

Rest assured I have also specifically asked Cameron how we should be thinking about the FY26 average group tax rate, approx. 29%?
To your other point, agree 100%, an analyst briefing and Q&A call after the announcement would do a lot to boost analyst and investor engagement and should be on their program now they're an NZX50 constituent.  I never thought 75% was sustainable, that's simply not logical and I have been a little surprised analysts all jumped on the most recent 75% imputation level and accepted that as the benchmark going forward..  Possibly worth noting if Australian sales keep growing at a 15% CAGR for the next 5 years they will be just north of $500m in FY30 and N.Z. sales likely to remain fairly flat at  circa $220m, representing just ~30% of group sales.    Maybe analysts need to think about that when forecasting their imputation level going forward. That said, the recovery in margin for Glasson's N.Z. that you astutely noted gives some encouragement regarding the resiliency of the current imputation rate. 

[Fiordland Moose]

there is still (one would hope!) a cyclical rebound in apparel demand in NZ to look forward to.

any day now. Any...day....or year, or decade. It'll come. maybe. hopefully.

survive till 2026 and a half? regardless, will help with imputation when it occurs.

[Greekwatchdog]

For Bar update

Hallenstein Glassons (HLG) reported a solid FY25 result, with profit before tax (PBT) of NZ$58.4m, +12% ahead of FY24 and at the top end of its guidance range. HLG did an admirable job of defending profitability in its NZ businesses while continuing to grow Glassons Australia. Trading through the first seven weeks of FY26 was also strong, with +13% group sales growth. There was no update on CEO succession, with ex-CEO Chris Kinraid having left the business in early September 2025. We continue to view the risk–reward as attractive, with the business: (1) in a strong cash position (NZ$58m net cash); (2) trading on a one-year forward PE of c.11x; (3) expected to deliver solid earnings growth (12% FY25 to FY28E EPS CAGR); and (4) paying a partially imputed c.7.4% FY26E cash dividend. OUTPERFORM.

What's changed?
Earnings: Revised our FY26 to FY28 EPS estimates by +4%/+4%/+5% respectively
Target price: Increased +3% to NZ$11.10.
Another record FY25 result
HLG reported its second consecutive record PBT result of NZ$58.4m in FY25, which is impressive in light of the challenging operating backdrop, particularly in NZ. Glassons Australia continues to be the primary growth driver, with sales up +15% on the prior year, driving a +16% increase in PBT to NZ$34.2m. Glassons NZ also grew PBT +27% to NZ$19.2m, driven by a +2% increase in sales and c.+120bp of gross margin expansion. This was partially offset by the Hallenstein Brothers business, where PBT fell -36% to NZ$4.8m due to broadly flat sales but -200bp of gross margin contraction versus the prior year.

Positioned for growth in Australia
HLG is well positioned to further its growth aspirations in Australia, with NZ$58m of net cash on its balance sheet and the completion of its purpose-built warehouse in 2H26. Glassons Australia has gone from being broadly breakeven in FY17 to c.57% of group earnings in FY25. We forecast an FY25 to FY28E EBITDA CAGR of c.15%, underpinned by modest store openings (~two per year) and solid sales per store growth CAGR of c.6% as the business continues to take market share.

Strong start to FY26 but lots of trades to make 
Sales grew +13% in the first seven weeks of FY26. HLG cautioned not to treat this as indicative of year-ahead performance, given key Black Friday and Christmas trading periods are still ahead of it. The strong start to the year continues to be driven by Australia, where the consumer has been more robust but also where Glassons Australia has increased its market share by a factor of almost four times over the last decade. A trading update will be provided at HLG's annual shareholder meeting in December 2025

Buying quality; OUTPERFORM
HLG is trading on a one-year forward PE of c.11x, in line with its history but below its apparel retail peers. We continue to view the risk–reward as attractive in light of forecast EPS growth, net cash position, and its strong dividend yield. Brand performance is below.

Glassons Australia—sales up +15.3% on the year prior to NZ$252m. Gross margin down -5bp to 61.5%. PBT of NZ$34.2m, up +16% on the prior year. Two new stores opened in the year (Sunshine Coast, Harbour Town Adelaide). HLG is currently working on a new purpose-built warehouse expected to be ready in 2H26.
Glassons NZ—sales up +1.7% on the year prior to NZ$112m. Gross margin up +120bp to 56.5%. PBT of NZ$19.2m, up +27% on the prior year. Two new stores in FY26 (Manawa Bay and Frankton, Queenstown), and the Timaru store closed in August 2024.

Hallenstein Brothers—sales flat on the year prior at NZ$107m. Gross margin down -200bp to 57.2%. PBT of NZ$4.8m, down -36% on the prior year. One new store at Manawa Bay, plus a new concept design store rolled out in Silverdale, Auckland.

Earnings changes
We increase our FY26 to FY28 EPS estimates by +4%/+4%/+5% respectively. This is largely driven by upgrades to our Glassons NZ estimates at both the sales and gross margin line. Our PBT estimates increase +8%/+8%/+9%, slightly higher than our NPAT estimates, with a higher effective tax assumption being the key difference. We estimate FY26 capex of NZ$24m, including the estimated NZ$5m warehouse costs for Glassons Australia.

                2025    2026    2027    2028
EPS* (NZc)   66.2   78.2   86.3   92.4
DPS (NZc)   55.0   66.5   73.5   78.5

[winner (n)]

NZDAUD falling. Guy on radio says could go down further from 88  to 86 or lower

That could impact bottom line by $2m odd when AU earnings are translated into NZD

[Greekwatchdog]

NZDAUD falling. Guy on radio says could go down further from 88  to 86 or lower

That could impact bottom line by $2m odd when AU earnings are translated into NZD

You could also say the NZD/USD cross could go lower as well making it more expensive to import the clothes.

[Waltzing]

Great if you holding AUS dollar stocks that payout in Kanga's

[winner (n)]

You could also say the NZD/USD cross could go lower as well making it more expensive to import the clothes.

Just put the prices up ... no worries

[Greekwatchdog]

Just put the prices up ... no worries

Yeah righto, alls sweet then

[winner (n)]

Yeah righto, alls sweet then

Hedging helps this year

[Greekwatchdog]

Hedging helps this year

Look, its well run company so I would expect them to be doing that anyhow. Just pointing out that its not all win, win out there.

Anyway put this back in bottom draw and let them do what they do for another year or 5

[Basil]

.....                  2025   2026  2027  2028
EPS* (NZc)     66.2    78.2    86.3    92.4
DPS (NZc)      55.0    66.5    73.5    78.5

Imp %                  56     50       49       48
PE at $8.95        13.5    11.4    10.4    9.7
Gross Yield        7.3%   8.8%   9.5%   10.1%

I've done some analysis on expected level of imputation credits in the years ahead, applied that to the forecasted Forsyth Barr forecast dividends and calculated the gross yield for the years ahead, noted above.  Also calculated future PE's.  Worth noting that all these calculations are done on the current share price which carries a 30.5 cps final dividend attached.  Back that divvy out and treat as part prepayment of purchase price the metrics look even more compelling on a net purchase price of ~$8.65. 

Very rare you get forecast growth like this with strong dividend yield and trading on truly compelling metrics.  Impossible to overstate the enormous runway for growth in Australia, (circa 20 years) with currently only a similar number of Glassons stores there as we have here and yet the population is ~ 27m there v 5.3m people here.   Glassons Au's growth story is just getting started.

For what its worth I'm quite pleased with how resilient my calculations show the level of imputation credit to be.    One of the key variables is the recovery rate of earnings in Hallensteins which is surely at a cyclical low.  Quite possible the imputation level will be slightly higher as my forecasts are for a slow recovery in Haldenstein's N.Z. profitability.

[Hectorplains]

Hallensteins which is surely at a cyclical low.  Quite possible the imputation level will be slightly higher as my forecasts are for a slow recovery in Haldenstein's N.Z. profitability.

Is it just a cyclical low, or is it more than that?  I think they have issues with appealing to their 18 -30 male target market and their clothing's durability (a marked decline in quality from previous years.)  Their online service seems to run hot and cold too.