HLG - Hallenstein Glassons Holdings

[Basil]

Pretty solid update from UNI in OZ bodes well for HLG continued growth

RBA put rates up to 4.35% today .....judt as well most Glassons customers don't have mortgages

Well spotted mate.  "The Group's YTD performance is very pleasing given current geopolitical and
economic uncertainties.   Despite these macro-economic conditions, we have not
seen a material shift in sales trends across the Group in this period."

Briscoes sales update the other day was also pretty solid.  Maybe its just old buggers like us that worry about geopolitical events and the young ones are still out and about spending and peacocking around like they always have been.   Certainly retail in N.Z. has been extremely tough for more than 6 years now since Covid hit and yet HLG sales have grown very nicely indeed over the years.

[Basil]

HLG's target market Gen Z very optimistic about the year ahead, significantly more so than other age groups.
https://www.news.com.au/finance/money/young-australians-back-themselves-to-beat-costofliving-crunch/news-story/2bed848015bbd86ca9f198fce5991928
13-30 year old's love getting out there dressed nicely to peacock around no matter what's going on in the world.  The social media pressure to look their best is relentless and HLG has their back with stylish clothes at an affordable price.

[winner (n)]

Some market research .... Australian women's apparel market is currently valued at roughly AUD 17+ billion and is projected to grow at a Compound Annual Growth Rate (CAGR) of 6.88%.

Jeez add market share gains for Glassons along with what Basil mentioned above re Gen Z no reason not to assume Glassons will grow by 15%/20% pa in the forseeable future

[Dolcile]

sssshhh I've been taking advantage of the recent weakness to top-up!

[winner (n)]

Hope this doesn't impact Glassons too much

Goodson said the Fair Work Commission in Australia has delivered a 4.75% minimum wage increase. "This will ripple through the market with direct employment cost impact.

No worries ...they'll just increase their selling prices

[Basil]

Inflation in Australia was 4.6% for the year ended 31 March 2026 so it's just an inflation increase.

[Basil]

https://www.interest.co.nz/economy/138836/anz-card-spending-rose-18-may-month-month-and-48-compared-may-2025-bank%E2%80%99s-chief

Excerpt  Most apparel category stores saw solid growth in spending in May after falls in April, except Children and Infants Wear which was down 4.4%.
Zollner said there was "overwhelmingly positive growth" in May spending across the durables category.
"It seems consumers are in the mood to just get on with it," she said.

Interesting.  Have consumers adapted their behavior a bit to higher fuel prices, (drive a bit less), and still want to get out there and have fun ?

[Basil]

So, just a brief recap first.  HLG was trading at a no growth PE of 11.5 ten years ago and had a history of being a cyclical no growth N.Z. retailer with a minimal $40m gross sales for Glassons Au (approx 18% of group sales).

A decade later, based on consensus analyst forecast for they are still trading on a forward FY27 PE of 11.2 despite a proven 10 year history of growth over the Tasman driving Glassons Au sales to circa $300m this year, the majority of group sales and driving a 10 year EPS CAGR of 14%, (based on consensus analyst forecast for FY26).

Buyers in 2016 paid full price in terms of forward metrics for what was a no growth mainly N.Z. cyclical retailer but buyers today can pay the same forward metrics for a proven Australasian growth company with most of its sales in Australia with a proven 10 year EPS CAGR of 14%. !
What part of that makes any common sense ?  To me HLG are far better value today based on their current metrics than they were 10 years ago.  You're buying a proven high growth company for no growth metrics !

This is where this gets even more interesting.  This outstanding growth has occurred with no debt at any stage, no share issuance, no bond issuance and with no dividend reinvestment program and all the while they have paid outstandingly high dividends.

How can they have possibly achieved this ?  Well, a comment at last years annual meeting gives us a clue.  With good stores they can recover the multi million dollar fit out cost within the first years trading !  Is that a highly efficient way to generate return on capital invested or what !

So how have shareholders who have held all these years done ?

It was a slow morning at work so I decided to calculate this out manually seeing as A.I. couldn't answer my questions.
I went through and tabled the share price as at 30 June each year since 30 June 2016 at $2.65 and measured the amount of share price movement for each year to which I added the dividends paid each year, just the dividends declared, not the imputation credit value and as most of the dividends were fully imputed the vast majority of the gain over the last decade has been tax free.

This gave the following results for total shareholder return each year, also stated as a percentage based on the opening price for the year
2016 - 2017 TSR $0.68 25.7%
2017 - 2018 TSR $2.10 69.5%
2018 - 2019 TSR $0.89 18.7%
2019 - 2020 TSR -$1.26 -24.2%  (Covid crisis impact)
2020 - 2021 TSR $4.37 123.1%  (Huge Covid Bounce-back)
2021 - 2022 TSR -$1.56 -20.9% (arguably a correction from the extraordinary recovery the year before)
2022 - 2023 TSR $1.15 21.0%
2023 - 2024 TSR -$.09 -.01%
2024 - 2025 TSR $3.17 56.9%
2025 - 2026 TSR YTD $2.365 28.7%

Next I calculated the TSR over the 10 years assuming someone invested $1,000 at the start.  The calculation is thus, $1,000 x 1.257 x 1.695 x 1.187 x 0.758 x 2.231 x 0.791 x 1.21 x 0.999 x 1.569 x 1.287 = $8.257  People should note the variability in annual returns, its not always a positive year.
I checked these calculations three times.  Happy to share all opening and closing prices and dividends if there's genuine interest.

So $1,000 invested 10 years ago is now worth $8.257 with all dividends reinvested.  This ignores the cases where the level of imputation credit did not cover the tax so is a bit simplistic for ease of calculation purposes.  So what is the average annual TSR ?

I put the opening value of $1.000 and the closing value of $8,257 into the CAGR calculator I use here https://cagrcalculator.net/ and the average CAGR s 23.5% !  23.5% is the average annual total shareholder return.

Reiterating this is with no share or bond issuance and a very conservatively run company run with no debt at any time in the last decade.
Hat tip to HLG management.  They really know what they're doing as many of these years were affected by Covid and recessionary conditions.

The opportunity ahead is clear.  They have only just surpassed the number of N.Z. Glassons stores with Australian stores and Australia has more than five times the population so there's a massive runway of growth ahead for Glassons Au and they have a well proven approach to conservative store expansion and growth over there.  There's also the prospect for more Hallensteins stores in Australia and they are building a huge new roboticized warehouse to enhance picking accuracy and efficiency due for completion this year.

I like the very conservative way they run the business, the very long history of trading for Hallensteins and Glassons of over 100 years and James Glassons determination to run the business in such a way they're sure they'll be in business 100 years from now.
For all the above reasons and many more, HLG is my #1 listed investment position and it will stay that way. 

[Dolcile]

Great analysis Basil.   You mention the PE 10 years ago was 11.5x.   Almost exactly what it is today. That's quite amazing.   I wonder how that compared to other similar businesses at the time, I.e. was that fair or was it over/undervalued (without the benefit of hindsight). 

I've got quite a few HLG.   Tempted to get some more if it dips below $10

[Basil]

Thanks Dolcile, its sure is amazing.  You'd think with a decade long track record of 14% EPS CAGR the market would have given them some credit and ascribed a higher multiple well before now.  The fact that it hasn't means its an extraordinary opportunity going forward because you're buying proven growth for what is basically a no growth metric. I know many smart investors who think the same.

A decade ago there was no analyst coverage and I was my own analyst.  HLG had a superb long term track record of strong dividend payments that went back a long long way.  You can see some of the history here on page 3 of the 2016 annual report in the 5 year summary.  https://www.hallensteinglasson.co.nz/annual-report/2016
Here in the 5 year summary of the 2011 annual report you can see they were paying 30 cps in dividends all the way back in 2005, 11 years before I bought in.  https://www.hallensteinglasson.co.nz/annual-report/2011

For me back then, I freely acknowledged it was a no growth cyclical N.Z. retailer and I was buying purely for the dividend yield.  I knew the PE but I was more interested in the incredible yield as I believed it was sustainable.  31 cps fully imputed for FY15 = 43.05 cps gross on a share price of $2.70 is a massive gross yield of nearly 16%.  I figured I would just hold it indefinitely for income and honestly I never ever expected any capital gain at all.  Its funny how things work out sometimes eh.  The next year James Glasson was appointed as CEO of Glassons Au and the growth in annual sales that's followed over the next 9 years from $40m to (estimated over $300m), this year has been truly remarkable.  10 years ago HLG was a company meandering along doing $200-$220m gross sales plus or minus a bit almost all of it in New Zealand, year in year out, over and over and over again.  This year they'll be doing circa $550m and growing and most of that is in Australia !  This is a huge success story for the company that's expanded extremely successfully across the Tasman and gets almost no recognition for that achievement or the huge opportunity ahead.

Just as a point of comparison, it would be interesting to know what other successful retailers metrics were back then, say Turners and Briscoes.  I can't remember.  You've piqued my curiosity so I might try and do some digging.

Under $10 is fabulous buying in my opinion, or anywhere around there for that matter.

Update:-
Briscoes share price 10 years ago $3.12,  EPS for the year ended 31 January 2016 21.7 cps trailing PE 14.4
Turners share price 10 years ago $2.90, EPS for the year ended 31 March 2016 24.7 cps trailing PE 11.7   Turners has seen meaningful PE expansion in recent years, probably off the back of Todd and Aaron being such excellent communicators with the investment community and so clearly articulating their growth plans in the years ahead.  HLG doesn't so that but that means their cheap PE is more of an opportunity.  Disc: I hold close to double the portfolio allocation to HLG than I do in TRA.   One of the reasons is I think HLG has a longer runway for expansion but TRA is still a fabulous company so its second equal to my holding in TWR which is also a huge dividend payer.  I really am a dividend hound.