HLG - Hallenstein Glasson

[Balance]

Well sales and profits are indeed two different measures, but its much easier to grow profits if you are growing sales (whereas trying to grow profits on flat or declining sales is very difficult).

One factor to consider is future profit margins are potentially impacted quite a bit by currency movement. If one looks at a 10 year chart for the kiwi dollar you will see that the 2016 HLG profit slump coincides with a large fall in value of the NZD (not saying that caused the poor profitability, but it certainly didn't help). Currently the NZD is at a multi year high, so while freight costs are temporarily spiked higher by Covid chaos, once that settles back down to normal we might find HLG does very well in the current favourable exchange rate environment.

HLG hedges foreign exchange contraxts up to one year in advance so the further we move into 2021 as the contracts roll over, the better the currency situation should get (presuming the NZD dollar stays in a similar range to what it is in now - or higher would be better of course).

Actually, good companies invest in growth at the expense of short term profits.

When the sales growth strategy is successful, profits will grow - that's how I was taught in my economics classes anyway.

[LaserEyeKiwi]

Actually, good companies invest in growth at the expense of short term profits.

When the sales growth strategy is successful, profits will grow - that's how I was taught in my economics classes anyway.

Yes, I agree.

[Balance]

Yes, I agree.

And what have HLG been doing?

Investing in growth - Glassons Australia & online platform.

And we are getting the results - looking extremely positive.

[Waltzing]

"MFB dividend to be paid from the very same money they are raising from the IPO! I recall a company doing the same at an IPO - Feltex."

oh classic ..... under arm blowing from that side umpire..or no ball from the umpires... just shows how much reg work there is to be done on the companies act relation to dividends..

anyway it all starting to look like the days of champagne IPO's of the 70's - 80's are back..oh those helicon days ..

and then came empire rose... and oh the days just got headier...

french champagnes on ice for end of summer..

[winner69]

"MFB dividend to be paid from the very same money they are raising from the IPO! I recall a company doing the same at an IPO - Feltex."

oh classic ..... under arm blowing from that side umpire..or no ball from the umpires... just shows how much reg work there is to be done on the companies act relation to dividends..

anyway it all starting to look like the days of champagne IPO's of the 70's - 80's are back..oh those helicon days ..

and then came empire rose... and oh the days just got headier...

french champagnes on ice for end of summer..

Empire Rose was magnificent

I drew her in the Melbourne Cup sweep that the big wigs of a big NZ listed company were running. Entry was 200 bucks and I think I only got roped in to make up the numbers (not enough big wigs)

It was cool when Empire Rose won but when the goodies were handed out it was 200 bucks short and had a note saying the big chief honcho still had to pay ha ha

Took several visits to the 8th floor with its plush surroundings to get the cash ....apparently he got told about the note on my whiteboard saying Pike owed me 200 from the cup sweep .....moral, message always gets through if you try hard enough

[Beagle]

Well sales and profits are indeed two different measures, but its much easier to grow profits if you are growing sales (whereas trying to grow profits on flat or declining sales is very difficult).

One factor to consider is future profit margins are potentially impacted quite a bit by currency movement. If one looks at a 10 year chart for the kiwi dollar you will see that the 2016 HLG profit slump coincides with a large fall in value of the NZD (not saying that caused the poor profitability, but it certainly didn't help). Currently the NZD is at a multi year high, so while freight costs are temporarily spiked higher by Covid chaos, once that settles back down to normal we might find HLG does very well in the current favourable exchange rate environment.

HLG hedges foreign exchange contraxts up to one year in advance so the further we move into 2021 as the contracts roll over, the better the currency situation should get (presuming the NZD dollar stays in a similar range to what it is in now - or higher would be better of course).

Well said. Exchange rate was indeed very tough in FY16 and other factors too. Extract from FY16 annual report

1. A lower exchange rate has had a negative impact on gross
margin which has fallen 3 basis points from 59.3% in the
prior year to 56.6% in the current year. We have substantially
consumed forward cover at unattractive rates and purchases
for the key December trading period will be made at a more
attractive rate.
2. Record mild temperatures on both sides of the Tasman during
early winter resulted in key winter categories failing to match
last year sales. A return to normalised winter temperatures has
allowed the Company to trade through winter stocks although
this had been at a lower than usual margin.
3. Difficulties in securing effective management for Glassons have
caused a lack of product continuity and fashionability which has
impacted both sales and margin. That key issue was addressed
with the appointment of Di Humphries in April 2016.

The establishment of distribution center's on both sides of the Tasman positions them extremely well for strong online sales growth and as you say, the currency is certainly a decent tailwind going forward. FA and TA both signal this as a compelling hold but then there's the history and credibility they've earned too over so many decades.

Tim Glasson's son took over the CEO role at Glassons Australia a few years ago and look what's happened to growth there since then !

[winner69]

Noodles did a great analysis a few years ago showing the relationship between gross margins and NZD

Was a quite strong relationship when he did it but that relationship has broken down in recent years

Not always easy to do but product pricing should mitigate currency fluctuations (esp if you have more than 5 stock turns a year)

Maybe currency was just an excuse in 2016 and demonstrated they didn’t have much pricing power ..or just stuffed up the pricing of goods for sale.

[Waltzing]

"Empire Rose was magnificent"

i will be raising a toast to those no longer with us.. god bless them all, just paintings on the wall.

[Balance]

Well, in this period of sector rotation out of yield stocks into growth & inflation-benefiting stocks, let me know if there's one other stock on the NZX which offers the combination of high yield and growth like HLG.

I undertake to switch half my HLG shareholding into the other stock.

[Waltzing]

"fed chair this morning" said what inflation or did i miss the statements..

its a time when the ten years causes people to panic and then as the yields rebuild across the economies it has less and less effect.

it unlikely to hit 6% again any time soon. If it gets past 3 it will be lucky and that will cause a lot of dislocation for a while.