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  1. #2911
    Speedy Az winner69's Avatar
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    Last couple announcements been a bit miserable haven’t they, I hadn’t really tried to read between the lines until yesterday.

    Their updates usually are of a more general nature but the Chairman’s little bit about F19 outlook was pretty detailed for them (like mentioning fuel, electricity etc)

    Maybe margins aren’t only being affected by the lower NZD and AUD but also from competitive forces — that’s might ‘challenging market conditions’ do to you.

    If that is the case the 58% gross margin some of you are thinking might be a bit optimistic. Remember that each 1% point of margin impacts npat by ~$2m.

    I also get the impression that keeping expenses down are a bit of a problem, especially the cost of running an ever increasing number of stores. They mentioned electricity for instance, but no mention of wages which is interesting. I think Beagle is forecasting expenses to be up 1% to 2% which I reckon is a bit light ...maybe needs to ask Mrs Beagle what’s the cost of living like.

    But then we don’t know how good or bad things are until February but I reckon it’s likely there’s more bad stuff than good stuff to come.

    Is that how Grahger read it .....they spent big when things looked good but changed their minds pretty fast for an outfit not renowned for short term punting
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  2. #2912
    ShareTrader Legend Beagle's Avatar
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    Good post Winner and I think you have made some very pertinent points.
    Yes absolutely the risk to that gross profit margin is to the downside and will depend upon the level of discounting as the season goes on. Maybe 56-57% is more realistic especially as the exchange rate was quite a long way below the multi year channel of 68-74 cents US (of previous years) when they would have been buying their summer stock. Also thinking about your post above and looking at the number of new stores again and thinking about mall rents, electricity costs in Australia which can be horrendous and wage cost pressure.. I think I do need to have another look at my modelling there so here we go...

    Store numbers - as per CEO's address at last years 2017 annual meeting 123 of which 10 were Storm so normalising this there was a total footprint as at December 2017 of 113 stores of which 44 were Hallensteins N.Z. and 3 in Australia and there was 28 Glassons Australia stores and 38 in N.Z.


    Comparing that to this years totals as at the date of the very recently held annual meeting there are now
    42 Hallensteins stores in N.Z. and 3 in Australia (after they closed 2 small non performing Haldenstein's stores during FY18) and there remains 3 in Australia
    37 Glassons N.Z. stores after they closed one non performing store in Henderson Auckland during FY18
    32 Glassons Australia stores after they opened 2 new ones during FY18 and a further 2 since balance date
    Total store footprint as at December 2018 is 114.

    Footprint expansion in percentage terms 114/113 = 0.88%.
    If we assume staff costs, rent and electricity is up by 2% then it would appear you are right Winner than we could be looking at an expense ratio increase in the order of 3% taking into account the slightly expanded store footprint.
    If we assume that and we assume a gross profit ratio of just 57% then you may be right and we could be headed for NPAT of somewhat less than $20m.

    Sticking with my forecast of $20 - $23m at this stage but there are clear risks to the downside so I will revise in due course when more data is known.
    Last edited by Beagle; 16-12-2018 at 11:30 AM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  3. #2913
    Speedy Az winner69's Avatar
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    Yes Beagle F19 result more dependent on margins and expense control than usual. Can’t rely on sales growth ...each 1% increase in sales only generates ~$1.1m incremental npat.

    A fair percentage of the expense based is of a fixed nature but could always cut back on marketing spend to keep profit up .....but that’s not always a good strategy eh
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  4. #2914
    ShareTrader Legend Beagle's Avatar
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    Sales growth is 4% (Is that 4 point something percent or 4.0 percent down from 4.8% earlier this month ?) but normalised sales growth for exit of storm brand is up close to 6%, (or was the 4% sales growth already normalised by the company for the sale of the Storm brand ?) on less than a 1% increased retail footprint or is the retail footprint slightly bigger because they did mention that the 2 Hallensteins Kiwi stores that were closed during FY18 were small and new Glassons store openings in Australia could be large footprint ?). Quite a bit of detail we don't really know here. Earlier this week I made the mistake of thinking same store sales growth was negative. Now having more time to look into this it doesn't look too bad. Sticking with $20 - $23m. Mid point $21.5m is 36 cps so I am sticking with that until there's more colour on how things are going this year.
    Last edited by Beagle; 16-12-2018 at 01:10 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  5. #2915
    …just try’n to manage expectations… Maverick's Avatar
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    After being inspired by the maths being discussed between Winner and Beagle, I thought I`d better not be so lazy and look up my own spreadsheets to asses the latest result.

    For the last 5 years up to FY2017 the overall margin (FY total sales divided by NPAT) has constantly ranged around an average of 7.4 %.
    There was stand out bad year 2016 when it was 6.1%... bad exchange rate , bad weather and missing a CEO.

    However in FY 2018, things changed. The first 6 months, margins skyrocketed to 10.3%, then the second half year fell to 9.4%
    The stunning 10.3% was unprecedented. My notes of the time all made reference to just how hot it was.
    The following 9.4 % during winter was a more regular winter weather, but even so it was still the second best result on record for HLG.

    My interpretation is that 2 things happening FY2018.
    1. It was a crazy hot summer which produced an unprecedented financial result.
    2. The average winter conditions still produced a result way above par, I believe this is from a combination of improvements HLG have made.

    My own conclusion is that while HLG was boosted by a one off weather pattern, HLG has systemically improved itself.
    I personally expect an average NPAT margin of 9.4% of net sales, going forward as the standard. (to that base rate I`ll make adjustments to allow for currency, weather and missing CEO`s).

    HLG has said it is too early to predict this seasons trading. Given the summer has only just started I also think it is too early go all a mathematical at this stage. That being said, with what we know in the infancy of this year can't see why HLG isn't going to make $23-$24 million NPAT but things WILL change.

    I`ll be looking for the, exchange rate, weather conditions and mostly the timing of the discounting racks going out ... well I`ll be asking Meg Ryan at least.
    Last edited by Maverick; 16-12-2018 at 03:28 PM.

  6. #2916
    ShareTrader Legend Beagle's Avatar
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    Really appreciate you having a go, much better than some monkey throwing rocks. Its very hot today so maybe after a refreshing beverage or two you might have done a typo when crunching your numbers so maybe have another look mate.
    http://nzx-prod-s7fsd7f98s.s3-websit...026/289507.pdf
    Last year they made $27.36m NPAT on $277.64m sales = 9.85 % net profit margin on sales but on very strong currency and as you observed a really sizzling summer this time last year.

    Even removing the loss making Storm brand from the comparison I think with the quite significantly lower currency this year and increased store footprint and related costs they might struggle to get to their 5 year average of 7.4% (mainly because of the very tough currency earlier this year when they were buying their summer stock) which on say $285m (which is a 3% increase, I have used 3% as sales growth momentum appears to be slowing) gives $285 x 7.4% = $21m which is around the mid point of where I see it. This gives about 36 cps on 59.6m shares.

    What is the right PE for where things are at for where we appear to be in the cycle ?....that's a very very difficult question. Pretty sure you meant to say $4.80 which is a forward PE of 13.3 on 36 cps. Seems a bit high to me.

    Winner do you have any data on the average PE of HLG over the years ? My gut feel is this is in the range of 10-11.
    Last edited by Beagle; 16-12-2018 at 03:30 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  7. #2917
    …just try’n to manage expectations… Maverick's Avatar
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    Ta Beagle,
    good spotting, your right onto it as usual. But i'd picked it up moments after posting so all fixed up now. (jotted down the wrong cells)

    As far as the down currency trend was, that things moves all the time so it's just as likely to be working in the positive in six months time, so i don't rate its effect medium term too much.

    I do really think the business has got itself functioning well though. Apart from any new competition biting the pie I see no reason for it to slump back to where it came from a few years ago. Right now I see it worth about $4.80-$5.20 but theirs no chance of that if Aussie guys keep selling.

    As far as competition goes, I was a little concerned about "Cotton on" but their stores have a seriously chaotic feel.
    Last edited by Maverick; 16-12-2018 at 03:53 PM.

  8. #2918
    Speedy Az winner69's Avatar
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    Beagle - over the years HLG PE ratio has been between 11 and 12. This is over June/Aug period on actual full year results at the time (ie not on forecast earnings). In the context of your 36 cents eps for F19 that would mean a share price of 400/430 next July.

    I’ve posted an updated share price v eps over the years chart. You can see most times the share price is around that 11/12 times eps ...but the share price overshoots big time on the upside eh (not the time to be buying HLG shares eh)
    Attached Images Attached Images
    Last edited by winner69; 16-12-2018 at 04:13 PM.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  9. #2919
    ShareTrader Legend Beagle's Avatar
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    Good skills Maverick and good to look at the shares a different way (your net profit to gross sales method). Not sure I agree with your conclusions about 9.4% net profit to gross sales ratio going forward but yes its well worth acknowledging they have made significant increases in the percentage of digital sales in very recent times and their digital footprint is smoking hot


    Definitely a winning strategy to only buy on the big dips eh Winner Shares are currently about the average that Graghar paid aren't they ? Maybe they just keep selling on the drip whenever there is buying, (which would probably take many many months) and the price is currently effectively capped and can only really go one way from here or best case scenario stay the same ?
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  10. #2920
    Speedy Az winner69's Avatar
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    I’m still a bit puzzled or wary why Grahger sold down so soon after buying in.

    Not really known for being short term holders .....something has spooked them

    The ‘Johnny Come Lately” would know a lot about Australia fashion retailing I reckon ...maybe Australia is where the real ‘challenges’ for HLG are.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

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