HLG - Hallenstein Glassons Holdings

[Basil]

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. 

Good question mate.  For mine, I think Hallensteins has been the problem child for quite a while.  Even pre-covid in 2019 they were talking about difficulties getting product that resonated with customers. file:///C:/Users/user/Downloads/HallensteinGlasson%20Holdings%20Ltd%20Annual%20Report%202019.pdf
Worth noting that Hallensteins division profit that year was $7.2m after tax and was only $3.3m in FY25.

I think management will be working incredibly hard to turn Hallensteins profitability around.  Its a 149 year old brand so they're not just going to roll over like an old Labrador dog and play dead, you can be absolutely sure of that.

[winner (n)]

The NZ clothing retail market is at best a low growth mature market and HLG struggle to maintain market share in it

Market (Stats NZ Apparel) has grown at 3.0% pa over the last 10 years

HLG NZ sales )Hallensteins and Glassons) have grown at 2.5% pa in the same period .... a slight share loss ...from 5.8% to 5.4%

I cant see things changing much over the next few years. Even if there is a huge cyclical uptick in overall retail sales clothing will be a laggard and Hallensteins/Glasson will still find it hard to make any decent market inroads

That's how I see the NZ clothing market.

[winner (n)]

Online sales are now about $85m

Since FY17 Group sales have nearly doubled but online sales have quadrupled .... pretty good eh

In store sales are up 77% over the same period

Annual Report will show how many Tik Tok and Instagram followers they now have

[winner (n)]

One other thing with those online sales is that they did the job during lockdown (annual sales >$100m) I'd hazard a guess the retention of those customers has been pretty high ....still buying online or visiting stores .....and probably got quite a few new customers as well.

[Basil]

I see Forbar didn't bother to try and estimate imputation level going forward ?  Just wrote N/A in their research report for each of the forecasted years going forward.  That's pretty strange ?  Not that hard to crunch the numbers and estimate the N.Z. and Aust split on profit going forward, tax thereon and work back to expected imputation level.  I'm happy with my calculations earlier today.  Expect about 50% imputation credits going forward for the next few years, give or take a few percent.   Likely to gradually grind down lower in the years after that.

[Clearasmud]

Just wondering is it possible to give franking credits to Australian addressed shareholders to save more imputation credits for the New Zealanders?

[Basil]

Unfortunately franking credits and imputation credits are not interchangeable and neither country allows a tax credit for company credits in the other's jurisdiction.  I understand considerable effort has been made over the years under CER, (closer economic relations) by N.Z. Govt officials to remedy the impasse but its stuck at a federal level in Australia because as they see it, mutual intercountry recognition of franking and imputation tax credits for individual shareholders would cost them too much money.   My hope is that Australia at some point reduces its corporate tax rate for larger companies with turnover over $50m, of 30%, smaller companies get a 25% corporate tax rate, (yeah its a weird system), which is presently the third highest of OECD countries.   The average OECD corporate tax rate is 24%.  The N.Z. company tax rate could do with a reduction too.

[winner (n)]

Westpac Kelly says — 88c vs the Australian dollar is gone. Are we heading back to where the exchange rate averaged pre GFC which was more like the low to mid 80s?appropriate

Glassons AU profits looking good on translation

[Basil]

If we go down to say 85 cents Australian, converting Glassons Au earnings to $Kiwi means increasing $Kiwi earnings.  To my mind banks are about as good at forecasting exchange rates as they are at forecasting house prices, I.e. useless.

[winner (n)]

If we go down to say 85 cents Australian, converting Glassons Au earnings to $Kiwi means increasing $Kiwi earnings.  To my mind banks are about as good at forecasting exchange rates as they are at forecasting house prices, I.e. useless.

Could be NZ$5m plus extra

[Fiordland Moose]

I see Forbar didn't bother to try and estimate imputation level going forward ?  Just wrote N/A in their research report for each of the forecasted years going forward.  That's pretty strange ?  Not that hard to crunch the numbers and estimate the N.Z. and Aust split on profit going forward, tax thereon and work back to expected imputation level.  I'm happy with my calculations earlier today.  Expect about 50% imputation credits going forward for the next few years, give or take a few percent.   Likely to gradually grind down lower in the years after that.

bit weird that. they could do the lazy way - just guess the IC's per share by looking at history, and add it to the forecast declared DPS, to get gross (then maths showing the % imputed).

Historical IC's per share:
FY25:10.6
FY24: 12.0
FY23: 11.2
FY22: 3.4
FY21: 16.5
FY20:15.2
FY19: 17.1
FY18: 17.1

Jarden dont even talk about imputation. They are a bit more bullish than Forbar, but mainly on account of margins. Have to admit Forbar did a pretty good job of forecasting the business in their last few reports (better than Jarden).

One thing I noticed was the declared DPS % of reported NPAT has declined this year. Still bloody good and high at 83.1% but below 5 year average preceeding this year of 88.5% (83.8%, 84.1%, 97.8%, 89.5% 87.3%). Maybe on account of the extra capex this year with the OZ warehouse, wonder if it'll impact 1H FY26 div. Not a biggie as for a good cause but hopefully historical 1H payouts maintained

[Basil]

Curious where Jarden see forecasted EPS and DPS for the next 3 years...sharing is caring
Record cash on hand of $58m will easily account for FY26 capex in my opinion. 
Winner, different bank has a different view on the exchange rate, there's a big surprise 
https://www.nzherald.co.nz/business/markets/currency/nz-dollar-still-suffering-after-gdp-dip/QZURG7HHTNBN5CZISZBMT7GEYI/

P.S. Halenstein's need to do more to stimulate demand for their products from their target market of young men and they need our help.  I reckon fit their stores out with a decent T.V. screen next to the suits on display and have this video playing.  I've never seen a better reason to buy a new suit lol
https://www.youtube.com/watch?v=gC28Bv7r8v0
 

[winner (n)]

Should be on retail stocks thread but I'll put here just to highlight how great HLGs stock management really us.

High GM%, by far highest stock turns and the $9.65 GM from every $1 of stock is amazing .... Esp compared to WHS and KMD and MHJ and that's why HLG share price us approaching $10 while other languish where they are with punters hoping it will all come right ..one day

You cannot view this attachment.

But

[Fiordland Moose]

Curious where Jarden see forecasted EPS and DPS for the next 3 years...sharing is caring
Record cash on hand of $58m will easily account for FY26 capex in my opinion. 
Winner, different bank has a different view on the exchange rate, there's a big surprise 
https://www.nzherald.co.nz/business/markets/currency/nz-dollar-still-suffering-after-gdp-dip/QZURG7HHTNBN5CZISZBMT7GEYI/

P.S. Halenstein's need to do more to stimulate demand for their products from their target market of young men and they need our help.  I reckon fit their stores out with a decent T.V. screen next to the suits on display and have this video playing.  I've never seen a better reason to buy a new suit lol
https://www.youtube.com/watch?v=gC28Bv7r8v0
 

Sorry missed this, here you go.

FY26/FY27/FY28 respectively shown below
EPS: 78.6, 86.0, 93.8
DPS: 67.0, 77.5, 84.5

despite the forecasts target price only $9.10.... #sandbagging....

yes cash easily can account for capex. But they are a conservative bunch. I assume payout ratios will hold steady going forward but will cross my fingers regardless.

[Basil]

Thanks for doing that exercise Winner.  I had been meaning to get around to comparing HLG's stock turn with the others.  Gosh, their stock turn is even considerably better than the highly efficient K Mart, that's quite remarkable.  And look at that gross profit per $1 of stock held.  WOW, that's incredible.  Talk about a hugely rewarding and highly efficient business model !

Thanks Fiordland Moose.
That's a very modest price target given HLG's proven and forecast growth rate. 
Gosh FY28 divvy 84.5 cps.  That's a LOT !     I doubt it'll be that high because as you say, they are very conservative.