HLG - Hallenstein Glasson

[dreamcatcher]

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.

[Cyclical]

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.

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!

[ratkin]

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.

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

[Beagle]

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.

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

[DarkHorse]

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!

[dreamcatcher]

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!

You are correct, people seeing risk as greater then reward currently the new norm and rightly so......

https://www.tvnz.co.nz/one-news/new-...rvive-covid-19

[kiwico]

A fortnight ago Beagle asked:

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.

Given the close contact queues outside Burger Fuel and other such places on the first day of level 3 it seems to depend very much on which generation you are. In the media's photos it seems Gen Y are very happy to get close to one other, even just for a burger.

I'm Gen X and I had to ponder yesterday as to whether I broke my bubble to help an old guy lying under his 200kg BMW motorbike (it was at a roundabout; apparently a car arriving late into the roundabout caused him to rapidly decelerate and his very heavy bike had the better of him).

So as long as HLG, or at least Glassons, continues to appeal to Gen Y and younger we should be okay.

[Cyclical]

In the media's photos it seems Gen Y are very happy to get close to one other, even just for a burger.

Yeah, made the same observation myself seeing a pic of a Burger Fuel ruck. That right there is probably why we're on a hiding to nothing on the containment of this virus at level 3 or less. I got called out to a factory yesterday to fix something, first time having to work out of home in a month, and the relaxed attitude and containment measures there were a joke. Throw in schools opening up and what chance have we got? Oh well, fingers crossed it's "eliminated" aye. Can't really see the economy or the public having the appetite for revisiting level 4 again.

HLG will be sweet though, fully targeted at Gen Y

[bull....]

if gen y do go back in droves ( i doubt it as heaps them be losing jobs and apparel suffers during recession) those buying around $2 odd lol got bargain of the century

[traineeinvestor]

if gen y do go back in droves ( i doubt it as heaps them be losing jobs and apparel suffers during recession) those buying around $2 odd lol got bargain of the century

FWIW, I went past the Hallenstein and Glasson stores in Newmarket yesterday and again today and there a lot of packages being collected on both days. Obviously, I have no way of knowing how that compares to pre-lockdown sales levels and how much of it is "catch up" rather than recurring business but they looked reasonably busy to me.

Disclosure: not held