HLG - Hallenstein Glasson

[James108]

So.. they are potentially overstocked by $4M, if aggressively discounted maybe they make a loss of what $500k? $1M? (my guess would be less) on that $4M as opposed to what? $200k profit.

Meanwhile $7M wiped off the value of the company today, pays to keep things in perspective.

[winner69]

So.. they are potentially overstocked by $4M, if aggressively discounted maybe they make a loss of what $500k? $1M? (my guess would be less) on that $4M as opposed to what? $200k profit.

Meanwhile $7M wiped off the value of the company today, pays to keep things in perspective.

James - that $4m odd of stock HLG would expect to sell for $10m (and make $6m margin). Would have improved cash flows significantly if they had sold it through eh (as they normally do at this time of year)

Did you notice that HLG cash position at 1 Feb was $12.7m - the lowest its been for many years and nearly half of what it was a year ago. And $9m of this is tagged as your upcoming dividend so lets hope they are moving this stock in this 'challenging retail environment'

(PS - discount that stock by 20% say and $2m of expected margin goes begging)

[winner69]

So.. they are potentially overstocked by $4M, if aggressively discounted maybe they make a loss of what $500k? $1M? (my guess would be less) on that $4M as opposed to what? $200k profit.

Meanwhile $7M wiped off the value of the company today, pays to keep things in perspective.

Maybe, just maybe, the 2 are connected.

Maybe the not so flattering report (which showed the increase in inventories) was the cause of the $7m being 'wiped off the value of the company today'?

[winner69]

HLG free cash for 1/2 year negative $1m

Dividend paid out in period $10m


Hmmm

[percy]

Logistics of retail.
You must sell through.
Space is at a premium in retail.
Slow/old/dead stock takes up valuable space.New stock can't be properly displayed because there is no room to display it.
Your clearance stores are also overloaded.Your whole distribution chain gets bogged down.Then stock needs to be doubled handled.
Disaster.The market knows the full meaning of this, and has started to value HLG accordingly.
HLG are also suffering from the affects of a low NZ $ on their margins.Cost of stock is a lot higher, and competition means they can't just put up their selling price.Occupancy costs just keep on raising.
That competition not only includes Rebel Sports,The Warehouse,The Farmers,Ezibuy,and Postie Plus,but very strong new entrants will make big inroads in HLG's market.

[Beagle]

Its concerning that the Warehouse and Briscoes seem to be doing okay in the prevailing environment whereas the former market darling of the rag trade is struggling.
Its not like the exchange rate is all that tough being somewhere in the mid to late 60 cent U.S. range is around the 20 year average so called Goldilocks level.
Stock hasn't moved through as freely as it has been and one wonders if this is specific to recent seasons, (some slightly off choices with styles for the spring / summer ?) or whether its symptomatic of bigger issues surrounding the ongoing proliferation of brand choice and changing customer purchasing trends ?

[James108]

Maybe, just maybe, the 2 are connected.

Maybe the not so flattering report (which showed the increase in inventories) was the cause of the $7m being 'wiped off the value of the company today'?

I realise the two are connected, most of the report was telegraphed in advance, which leaves their cash flows. Thanks for pointing out my error, inventories are listed at lower of net realiseable value and cost.

So using Rev/COGS ratio of 2.3 (from HY report), that $4M Inventory would be $9.2M in revenue (including 5% NPAT margin). Now if that $9.2M was agressively sold off at a 40% discount, on top of whatever 'sales' are normal that is a loss of approx $3.7M (including opportunity cost of not having sold those same customers something else instead at a higher margin).

I am trying to quanitfy how much this may cost HLG if they do in fact have an excess of inventory. I note that at FY11 to FY14 inventory levels ranged from $18.2M to $20.2M, I cannot find the half year reports. I am not saying HLG are undervalued or overvalued I simply thought the market reaction to this news was over the top.

Also I do not think their cash position is just due to over purchase of inventories, Maybe lumpy payment terms to suppliers?? how does $4M extra inventory = $14M in extra payments to suppliers?? They also paid $5.2M (HY15 $4.2M) and tax bill for HY16 was only $2.7M.

[winner69]

James, from my database HLG Inventory numbers

Feb13 $11.6m
Aug13 $20.2m
Feb14. $14.6m
Aug14 $19.9m
Feb15 $15.9m
Aug15 $19.8m
Feb16 $19.6m

Note the past seasonality - reflects the well managed company HLG is.

But something not right this year - stock levels did not come down as they usually do.

I dont think the price over reacted yesterday. Remember when they signalled all this it went down to $2.80 odd - and the announcement this week didnt have any good news (except the on line bit)

[noodles]

Now if that $9.2M was agressively sold off at a 40% discount, on top of whatever 'sales' are normal that is a loss of approx $3.7M (including opportunity cost of not having sold those same customers something else instead at a higher margin).

This is what I observed at St Lukes Mall a couple of weeks ago. Their revamped Glassons store was close to empty, but the their sale area (in a different area of the mall) was very busy. Everything in the sale area was $10. Now I would expect that that stock is being sold off at way more than 40% off. Perhaps 50-80%

So was their sales area taking customers away from the proper store?
I think they might have been better to offloading the stock to charity.

[Beagle]

This is what I observed at St Lukes Mall a couple of weeks ago. Their revamped Glassons store was close to empty, but the their sale area (in a different area of the mall) was very busy. Everything in the sale area was $10. Now I would expect that that stock is being sold off at way more than 40% off. Perhaps 50-80%

So was their sales area taking customers away from the proper store?
I think they might have been better to offloading the stock to charity.

Yeap I saw that too which got me a little itchy and pre-disposed towards the sell button. It is a genuine concern when they have to resort to selling everything at $10...must have been really good value because my canny wife with Scottish blood was buying it On the other hand both HLG and Glassons stores were really pumping like crazy with new year's sales in early January. Hard to figure that the retail environment could change that much in two months...guess that's what happens when you get left carrying the baby with excess summer stock !

HLG was good value when I bought in on 17 February at $2.74 cum divvy but looking at the actual result, stock level and poor cash flow I thought it prudent to sell for a very modest profit. Really all that happened between late February and March was Mr Wheeler kindly handed high dividend yield shareholders a free lunch as nothing about the companies performance would appear to merit a re-rating between then and now.

It would have to go back to $2.74 less the 13.5 cent divvy = $2.60 ex divvy for me to consider another punt on this one.