MHJ only has a 32M dollar debt.
Say 200k per shop
Mmm not too bad I suppose but need to get back to work soonish...
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the bounce was highly predictable ( maybe not the size ) at 1.80 it was way oversold ( probably over bounced now but looked like someone was agressively pushing the price up ). I still stick to my view for each % decline in sales the need to raise cash becomes more important. the no dividend policy i would imagine stays in place all year to cover the lease obligations. staff culling will take place as well to some degree along with inventory sell down if possible to raise cash. But as a retailer you can only cut so much and the fixed costs will bite you. So my pick raise some bank debt or cash issue?
In the US cpi announced this week apparel prices dropped 2%
I'm seeing HLG adds everywhere online right now, this will be emphasised because I opened one up to take a look which always results in more but hopefully they're selling a bit online.
I've certainly got a lot more spare $$ in the bank account due to everything being shut so perhaps I will get some new clothes.
Good reason to be very cautious with retail stocks, especially apparel with operations on both sides of the Tasman. https://www.nzherald.co.nz/business/...f=recommended\
We also shouldn't overlook the possibility that when lockdown restrictions are lifted in N.Z. we could see a spike in numbers and them have to revert to lockdown again, and again. I have always maintained that most people want to try clothes on for fit and to feel the fabric before buying. Sure their online sales will go up, but its not going to be a panacea for all their wows by any stretch of the imagination. I maintain my view that the bounce on this has been substantially overdone.
Huge amount of water to go under the bridge before retail looks anything like what it did before Covid 19.
Glassons target market don't necessary think that way Beagle. Young females I know are very happy to order stuff online then send it back if they don't like it, ASOS are hugely successful with this business model. I think men are more likely to want to buy clothes in a physical store though.
Agree that retail is in for tough times, I think fair value of HLG is around $3.50 at the moment based on a simple DCF model and that includes them making a loss this year. If they don't make a loss or profit recovers more quickly than I anticipated fair value would be much higher.
I simply think at an absolute minimum Thursday's 65 cent bounce is based on nothing but hope that this lockdown is a one off event and then its done and dusted. I don't see it that way. I think patronage at malls will be affected for a very, very long time. Online is 15% of their business model if I remember correctly. Maybe this goes up to 20% but that's still ~ 80% of their business that's materially affected for quite some time and how much will they lose in FY20 and maybe FY21 as well ? Too many unknowns for my liking.
You touch on the key thing that a potential investor needs to "calculate" at present, and calculate isn't the right word, because man, are there a wide range of outcomes...
Let's look at this as four variables
W = Current sales of the business in a lockdown state eg web sales.
X = Current expenses of the business in a lockdown state, eg assume wage subsidies and rent negotiated as low as zero as possible.
Y = Sales of the business once the lockdown is over.
Z = Expenses of the business out of lockdown, eg no wage subsidy (perhaps after a transition period where it was still paid?), rent closer to normal or normal.
Everybody is investing knowing that W - X = nothing good, while the lockdown is on, and arguably, it is right to look past this period, especially if the balance sheet is decent.
But I think people are starting to assume that Y - Z = something close to normal, but is that actually a safe assumption?
Once the lockdown is over, it is far more likely that Z returns to something more like normal than Y returning to something more like normal, at least for a while.
Given that wages and rent are such huge costs for retailers, it is actually possible that W - X produces less of a loss than Y - Z does, at least for a possibly prolonged ramp up period.
Also remember one of the main killers of businesses is fast growth. We're taught to see the rewards of fast growth, but fast growth periods are exceptionally dangerous for a business as expenses tend to ramp before revenues, systems, processes, teamwork and morale are tested etc etc.
We have a virtually unprecedented situation here : Previously low growth businesses basically halt completely. Then we want (need?) them to go from zero to lots very quickly.
I don't think that is going to go as smoothly in many cases as people expect, and people who have run businesses (especially those with lots of people) can probably appreciate some of the reasons why.
Full employment will be the key to retail success................ but personally would not be going to malls or any crowded places for the next 3 months.
Crazy to think that only 10 days ago James108 and I were having an exchange of views where I was suggesting HLG were too expensive then at $2.78. James had the last laugh there. Plenty of unknowns of course, but off the back of that discussion, I ran up some figures and concluded that, while difficult, they might just be lucky enough to squeak in with a flat result this FY, or at least keep losses pretty minimal. This is on the assumption that they have one dead quarter effectively between lock down and the end of their FY on 1/8. As for the next FY, who knows.
Too scared to make any price predictions on this one anymore, but in retrospect I wish I hadn't sold my holding 25/3 at $2.75!
people forget that just because we are leaving level Four, it does not mean we go back to normal. Level Three is fairly draconian too. No public gathering, libraries etc closed, Malls too? We have not actuslly had a level Three yet, and the current guideline for it could easily change, but we will not go straight back to normal
Excellent post. You have encapsulated and articulated my concerns far better than I did. Very well done !
How long is it before people en-masse feel really safe, (read confident), to go back to shopping malls again ? That's a bit like asking how long is a bit of string.
Confidence is a curious thing. Just a small element of doubt can be enough to put people off, (for example it took the airline industry 3 years to recover from the impact of 9/11). One could ponder how many people died in 9/11 compared to this virus, (so far) and then ponder how long it might be before people are completely comfortable to go back into shopping malls again ? Hmmm Y, (or technically more correctly the gross profit from Y at the current depressed exchange rate)-Z looks like quite a confronting worry then.
An excellent article by Mark Lister https://www.nzherald.co.nz/business/...ectid=12324373
I've been a big fan and holder of HLG for several years (one of my few NZX holdings) but the risk reward equation at the current price in the current environment just doesn't stack up. Far better opportunities elsewhere!