HLG - Hallenstein Glasson

Another retailer has issued a profit downgrade

The Directors advise that group sales for the key trading period of December and early January have been equal with last year. This represents an improvement on the trend of -2% advised to the market 11th December 2006.

Total group sales for the period 2 August 2006 to 22 January 2007 are -1% on last year, with same store sales -7%, which reflects a challenging summer season due to unfavorable weather conditions for apparel.

Stock levels are well controlled, and the company is well positioned to move forward into the new winter season.

Net profit after tax for the full 6 months to 1 February 2007 is projected to be in the range $9.8 to $10.0 million, down approximately -10% on the prior year ($10.9 million).

I'm a long term holder of HLG, so not too worried by this announcement as HLG is still a very well run company

Is their profit margin going down?

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quote:Originally posted by TheBoss

Is their profit margin going down?

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Is sales are down 1% and profit is down 10%, then it possibly is. Then again, they say that stock levels have been controlled, so the margin may not be that much down.

I guess we have to wait until the end of march for the announcement...

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quote:Originally posted by Steve

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quote:Originally posted by TheBoss

Is their profit margin going down?

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Is sales are down 1% and profit is down 10%, then it possibly is. Then again, they say that stock levels have been controlled, so the margin may not be that much down.

I guess we have to wait until the end of march for the announcement...

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Just from the ann one would have say that profit margin down from 11% to 10%

What has happened to Gross Margins we will have to wait and see

If there is a concern it has to be the 7% decline in same store sales ..... that's some fall

currently down to 500, down 12 cents, on a grand volume of 984 shares.
i see that there already buyers at 501 and 502, but the nearest seller is 512.
this stock is sufficiently bouncy to make a good trade stock, but am currently happy as a long-term holder also.

not sure that the words above are all that sensible!
hlg has had an extraordinary go-nowhere 12 months.
a couple of big bounces outside the range of 490-530.
the div is 6.8%, p/e is 14 which make it an ok hold, but would like to see some steady progress.

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quote:Originally posted by scamper

the div is 6.8%, p/e is 14 which make it an ok hold ...

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The historic P/E and yield are 14 and 6.8%. But looking at numbers rather than ratios, earnings were 36.62c per share and the dividend was 35c per share - a payout ratio of 95%.

I don't place much faith in brokers' forecasts, but those I have seen indicate earnings marginally below last year. After a first half that was down approximately 10% on the prior year, there's an expectation of some recovery built into those forecasts for the second half. It wouldn't take too much of a slip for the dividend to be chopped, and the P/E to move up into the expensive range.

Breaking the support level may not be particularly significant in the context of today's market?

It has closed back at the $3.60 level. We will know next week if it holds...

My feeling is that as retailing gets tougher as the housing market recedes over the next year stocks like HLG and HBY and even CAV will become even better buys for the next up-cycle. No hurry to jump in.

The HBK store in the Meridian Mall in Dunedin appears to be closed, but I'm not sure if they have closed it or are simply re-modelling the store.

Anyone know if HLG is reconsidering their HBK stores?

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Originally Posted by Steve

The HBK store in the Meridian Mall in Dunedin appears to be closed, but I'm not sure if they have closed it or are simply re-modelling the store.

Anyone know if HLG is reconsidering their HBK stores?

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Steve, IIRC Hallensteins no longer own the HBK stores. I think they were sold to Pumpkin Patch a few years ago.

SNOOPY

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Originally Posted by Snoopy

Steve, IIRC Hallensteins no longer own the HBK stores. I think they were sold to Pumpkin Patch a few years ago.

SNOOPY

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I will scroll thru the announcements and post my question on the PPL thread...

some hilarious (sad) history here.
the historic (I've learned from you Deev8) yield is now 14.89% and the p/e 8.83...
however, there is a 10 cps div coming on 12 Dec, which isn't bad for a 235 c share...

scamper bought these shares back in the mists of antiquity, and while i've occasionally added and shed some, am still a fundamental holder looking at nearly 90% profit.
does anyone else have a similar history? cheers.

Yo Scamper
I had a history with HLG, held for a number of years.
When the bears became apparent I cleaned out the cupboards so to speak, two months too early but these bear buggers dont post a date.
HLG reluctantly, was amoung them.
I have always felt that they were/are still, a very well managed company,
with a very good retailing model.
I am still watching and waiting as I think they still have some SP downside
yet, due the retail sector in general.
Rebound.....My guess, March 2009 will tell
Cheers BB :)

Okay guys HLG looks pretty good to me. They have already taken a 25% drop in profits and a major hit to the share price. Even so they have a dividend yield of at least 8% p.a. (given nothing really terrible happens to the economy) at their current level of profitability. I believe the price wont fall much further because then that yield gets EVEN better! Imagine the yield when the company returns to its normal profitability in years to come? Perhaps near 20% if bought now. Imagine the share price too. It has no long term debt either, another plus in terms of risk in this current environment. I'm not a trader, so I dont try and pick bottoms, just look for good deals.

Okay now here is the REAL sweetener ... all speculation however ... my speculation too ... ever heard of PREMIER INVESTMENTS LIMITED??? Well they have recently bought Just Group (JayJays, Just Jeans, Portmans etc). They still have $300m cash left to invest in (my guess) retail! Consider now that HLG is worth $150m ... and therefore well within the price range. Consider also that HLG has no long term debt ... making it even more attractive a target. Its a similar company to the Just Group (synergies perhaps???) and HLG has had its share price halve over recent months. Sources say that Premier is actively monitoring a number of opportunities. Hmmmm, any thoughts folks? Anyone wanting to hire me as their analyst??? LOL.

Also my DCF of HLG values the company at $2.40ish given a 25% drop in 2009 sales and a 11% drop in 2010 sales followed by 3 years of recovery at 5% growth with a terminal growth rate of 3% thereafter. Very conservative an approach (just incase things get that ugly). Okay now my disclaimer ... I dont do this kind of thing for a living, so do your own homework!!! I also have seen many sell recommendations on this stock .. not sure hold long they have been on for.

Hi Wilsta, nice first post!

I haven't followed HLG closely for some time. They appear to have positioned themselves fairly defensively. However, it pays to err strongly on the side of caution with retail in times of economic slowdown. Retail is a high fixed cost business, so a small change in sales becomes a significant change in profits.

The recent fall in profit was actually more attributable to increased fixed costs than reduced revenue (rents rated a mention, but it is likely that staff costs also increased with changes to minimum wage, holiday entitlements and kiwisaver). These pressures will not revert easily, although eventually the survivor companies may be able to price them in.

At a variable cost level, HLG is also likely to be experiencing exchange rate pressure on imported stock which may erode gross margins.

When you did your DCF, did you mean a fall in sales or a fall in profits of 25%/11%? I estimate that if sales dropped by 25%, they would make a loss of around $4m and a further 11% would have them on a loss of about $12m. However, these are fairly extreme falls in sales, so I am guessing you meant earnings. A 25% fall in 2009 earnings would probably be achieved by around a 10% fall in sales.

In a significant slowdown, it can cost money for retailers to stay in business. Quite often this sets the floor for a new generation of retailer to emerge. While I think HLG is well managed and well positioned, it may be better to wait until you notice a significant number or empty shops at the mall or hear "shock" news of a big retail name or two going under.

welcome wilsta, interesting thoughts you have.
take care with the generalisations though.
hlg's price hasn't really halved in recent months -- it was 480 in july last year, and has actually held up very well over the last few months, that is, since july this year.
it was 240 at the end of june, having suffered a 3-month slide from 400 at the beginning of april.
could it be said that the global turmoil of the last 3 months hasn't really affected it at all? cheers, scamper.

Ah yes I did mean sales, just never mentioned my other assumptions:
- I expect a semi-significant staff layoff,
- I also expect a reduction in other variable selling/other expenses e.g. advertising maybe?? but on an aggregate level. Whether they make a loss or profit in 2009/2010 doesnt have terribly much weight in my DCF. The terminal value is where its at. I probably should have assumed higher COGS and lower gross margin due to exchange rate pressures .. but did not. I think they use forward contracts on currency which may help cushion them a little. I should mention that I have bought HLG at $2.50 .. not really worried if it falls short term (actually I'm hoping it will to get more) but don't like to pick a bottom and felt I had to get in there sooner rather than later just so I have some.

Thanks Wilsta. I have used DCF's in investment for the last 10 years and continue to do so. In my experience, waiting 3+ years through low or negative earnings is not usually worthwhile. As a rough rule, the share price does not sustain a move against the direction of earnings change in the next 12 months.

In the current market, I can find many companies trading at around half my DCF - this is very unusual. When I started using DCF, I used to buy at around 67% of valuation and sell at 95%. By the height of the boom, I was having to buy at around 95% and sell at 130% (although there were other factors I was giving more weight to by then).