HLG - Hallenstein Glasson

[winner69]

All this growth with the same (just 59.6m) shares on issue year after year after year after...
eps and dividends per share could be "very interesting" in 5 years time

EPS could easily be $1.00 per share in f24 …let alone waiting 5 years for that

[Muse]

It's cool to see so many 'big dogs' of sharetrader here as fans of HLG. It's got me interested in the company - one I've always admired but not been close to. May have to do some work on the business and particularly the sustainability of their growth in Australia as its the engine of the business.

None of these are meant to be nags or in particular directed towards HLG - more just items that have swirled around my and probably other investors heads as they consider the retail apparel sector

* cotton prices are sky high. Most retailers don't actually source the cotton or yarn themselves - their factors do - but inevitably that will flow through. As I understand it local wages in China, Vietnam, and particularly Bangladesh are rising quickly so manufactured cost is on the rise
* Supply chain: bluewater deliveries taking 4-5 months longer to land in Australasia than before covid (can't sell what you dont stock), with container costs up 6x - so landed costs have & will continue to rise
* minimum wages definitely on the rise in NZ. Not currently au fait with what is happening in AU
* NZ interest rates will rise faster than AU - wouldn't be surprised to see further appreciation of the kiwi against the aussie which will erode Australia's profits when translated back into NZD
* most product sourced in USD. at NZD 0.68 thats not bad. Better in the 70s but can not bad buying at spot
* Costs of ESG: not so much concerned about HLG's ESG practices (they seem to do a good job at first glance) but there is a cost to doing that. Not just the handful of production FTE's they have to hire but the cost of responsible cotton/better cotton initiatives, extra factory audits, etc
* retail highly operationally leveraged - once your footprint is established in a country its bloody hard to even maintain profits, let alone grow. Eeeking out those extra dollars, that margin, when you have all the stores you have, and your stores are mature, is extremely difficult. Margins can fall incredibly quickly off a small slip in turnover once stores reach that level. A good online operation key to offset the bleed. There is nothing worse than being a shareholder in a retailer with no where left to grow. Obviously HLG has a big market in Australia to grow into - but it can reach saturation there too - so while a long term hold probably not a forever hold
* pricing power - sounds a bit counter intuitive but some retailers/apparel actually have a bit of pricing power, enough to offset some inflation. Is that HLG? Will HLG's customers accept double digit price increases to offset increased cotton and offshore production costs and recover higher overheads, so HLG can maintain its margins?
* womenswear traditionally much, much more difficult then menswear but Glassons doing well in Australia
* never underestimate how important the key designers are. Keeping their product on trend, without going off on too many tangents building up unsold stock and subsequent write offs. Keeping them in sync with production teams critical, and losing them has doomed other once strong retailers (like max fashions). HLG seem to have this nailed, but its when they lose their mojo things go off track fast. keeping the design & production team efficient and tight also key - don't want loads of designers designing loads of products that won't sell. I also recall what happened to pumpkin patch - after reading the liquidators report they had something like 60 designers - just a crushing overhead.
* I see some further gains in NZ retail - it would be hard not to envisage a sugar rush as people are released and some good spending over the next 12 months.
* But I do wonder if we will see peak retail spend in NZ next 12 months. Interest rates and inflation et al. From there is how far will spending fall when considering the vast amounts of savings that have been built over the last 18 months. Rents are rising and first homeowners will come under strain with higher mortgage rates.
* Australia will probably be better for longer for a lot of reasons, and a huge market if HLG can continue to grow their niche. But I dont know the retail landscape there in HLG's demographic so will probably have a poke about.

Lots of macro headwinds will impact different parts of this business at different times - for me - I would need to get comfortable the growth opportunity in Australia can outpace them. The glassons are top notch and mary devine one of the most savvy retailers out there so I can see the appeal. Company has been a performer for a long time and its yield is world class so there is a lot to like.

[winner69]

Long list of things to ‘consider’ re HLG there moose.

HLG Have been going since 1873. Sine then they’ve been World Wars, flu pandemics, depressions, many global financial crises, earthquakes and other natural disasters etc etc.

Even managed margins when NZD has collapsed, when there’s been oil shocks, when in 2010 cotton prices were double what it is today ans even when coffee prices have gone through the roof.

Still thriving after all that’s been thrown at them over the years …….and paid a decent divie most years

No worries here …and exciting times ahead

[Beagle]

Excellent post Fiordland Moose. There are challanges with any business at present and there will always be challenges to navigate.

This from an earlier post of mine
I really like the way they are very cautiously expanding. With HLG management, (unlike some companies), there is never any doubt whatsoever that they are acting in the best interests of shareholders at all times. I put this down to the the retail legend Tim Glasson having his 20% stake and his own son James doing such an outstanding job running the Australian operation. James doesn't have any problem with finding a great mentor for advice any time he wants does he !


I believe James is degree qualified in some Royal College of fashion and apparel in London (forgive me I forget the exact details). My point is that although he's obviously Tim's son, (which to some will bring up the ugly thought of nepotism) but he's not without excellent high level training and a brilliant legendary mentor whenever the occasion presents for some advice. The proof is there, he's smashing the ball out of the park with Glasson Australia and I believe we can look forward to much, much more of the same in the years ahead. Ultimately Tim has to leave some of his shares to someone and I'll give you one guess who that might be

I don't pretend to understand women's fashion and they way Women interact but I do believe that once a brand find's acceptance and momentum women talk amongst their friendship and social media groups and that talk leads to more momentum which leads to more talk and more...you get the idea.

I believe HLG have the highest percentage of online sales of any retailer in N.Z. To me that's "Gold" as we navigate our way through this pandemic.
You will have noticed earlier how I value the company but as Winner has alluded too, I also wouldn't rule out this possibility either that Glassons N.Z. and Hallensteins could easily start hitting their stride again contemporaneously with strong growth with Glassons Australia.

I've been mightily impressed with how Glassons Australia has grown during the pandemic notwithstanding all the headwinds you've mentioned. When you start thinking about how they will grow in the future and the possibility of further international expansion and its implications for the DCF valuation now...the forward PE looks very cheap compared to other N.Z. retailers (especially those who don't have international growth prospects...I'm looking at you WHS and Briscoes).

Way back in the 80's I did some work in the optional investment analysis paper I did at Auckland Uni comparing the performance of a group of companies wherein the directors or management had a sizeable stake (like Tim Glasson's 20% stake) to those that didn't.

The results were starkly different. Never underestimate the benefits to minority shareholders when management or the directors have a huge slice of their own money on the line. Forgive me if this comes across as unduly cynical but with HLG and companies like Briscoes with Rod Duke's stake you're never left in any doubt that they're running the company with a laser focus on what's best for shareholders. Far too often I see management running companies in a way where you'd be easily forgiven for thinking they either have their own best interests at heart or are there to make grandiose ESG directives as their key motivation. I see this so often I have serious trust issues with a lot of companies.

HLG is a company that I never lose a moments sleep wondering who they are looking after. On a forward PE materially lower than some other retailers in N.Z. and with better international growth prospects I think HLG are a very good long term hold. Arguably the best GARP (growth at a reasonable price) stock on the NZX.

Its plain to see I am quite excited about the future for HLG as we head into the next more open phase of the economy. That apparel growth statistic the other day was stunning and when you think about it, it makes perfect sense. Most of us have worn out a lot of our old clothes while we sloth around our houses for the last 2 years.

A lot of people are still super reluctant to travel and their wardrobes are looking tired and dated. A lot of the $10 Billion that's spent annually on international travel will find its way into retail coffers for the foreseeable future. Then there's the tens of billions that's backed up in people's accounts because they haven't been able to go out and the billions in Govt stimulus that's been injected into the economy.

Further, Glassons and Hallensteins primarily target the younger demographic, exactly the group that's more likely to get out and about in the shops now. Apparel up more than 50% in November, (when there was still huge restrictions in the Auckland region) then its now clear after opening up this sector is going to have a massive boom this summer.

HLG a classic dividend hound stock...strong growth while paying high dividends and all without any new share issuance. Suits this semi-retired old hound "purrfectly"

[Rawz]

Hmmmm yes okay it is a buy then. Some very good posts from W69 and Beagle for the bull case. Gosh, aren’t we all so lucky to have share trader and members that freely offer up their thoughts and analysis on company’s.

Hallenstiens were quite unlucky with COVID. Their range of affordable suits for the office, weddings or school balls didn’t have a chance to sell whilst we were all locked up at home or restricted from attending large events. Maybe a big bounce coming for them (as W69 has alluded to) now that they have rotated out of the big range of affordable formal wear to adding more casual.

I also agree with this peacocking theory. And think a lot of people have spent retail dollars on homewares and furniture over the last 18 months and now consumers might be done with that. Maybe those retails dollars will go towards a new wardrobe.

HLG is a well run company with great management. Strong balance sheet and everybody must love the dividend yield. Should pop over half a billion market cap within next couple of years. That should attract other larger parties to the table as it would be considered of sufficient size

[Muse]

Hmmmm yes okay it is a buy then. Some very good posts from W69 and Beagle for the bull case. Gosh, aren’t we all so lucky to have share trader and members that freely offer up their thoughts and analysis on company’s.

Hallenstiens were quite unlucky with COVID. Their range of affordable suits for the office, weddings or school balls didn’t have a chance to sell whilst we were all locked up at home or restricted from attending large events. Maybe a big bounce coming for them (as W69 has alluded to) now that they have rotated out of the big range of affordable formal wear to adding more casual.

I also agree with this peacocking theory. And think a lot of people have spent retail dollars on homewares and furniture over the last 18 months and now consumers might be done with that. Maybe those retails dollars will go towards a new wardrobe.

HLG is a well run company with great management. Strong balance sheet and everybody must love the dividend yield. Should pop over half a billion market cap within next couple of years. That should attract other larger parties to the table as it would be considered of sufficient size

I'll go in if you go in Rawz - let me know what you think is the right entry price and how much portfolio weighting you'll do...

[Beagle]

From Stats NZ Retail Trade data - If the Clothing and Footwear sector is a proxy for market size then HLG NZ sales are struggling to keep up with market growth. In other words losing share. Glassons are winning share sightly / Hallensteins losing share.

HLG sales in NZ have grown at 4.2% pa while market growth has been 5.0%

NZ consistently generates $16m/$18m of profit .... thats pretty good and then add on the strongly increasing Glassons profit and the Group is
powering ahead

And you never know NZ might come right big time --- the $50m profit in F23 could be $60m

I've been reflecting on that a bit this weekend. Certainly the top line growth of 16.9% for Glassons N.Z. and 9.9% for Hallensteins last year was also very impressive in the middle of a pandemic (all the more so for Hallensteins when you consider the formal wear challenges well articulated by Rawz), so if that continues and they can get their margins right here and strong growth continues as expected in Australia we might be really cooking with gas !

One thing is for certain, if we wait for all the apparent Covid challenges to clearly abate, it ain't going to be $7 then !

One thing I am pretty keen to avoid is trying to predict what the profit for any given year will be. I'm reflecting on the 5 year CAGR of 19% and the forward PE of less than 13 and thinking about this long term as a retirement income stock and how dividends are going to grow for me. What we have here is a PEG of less than 0.7 Hmmm

HLG makes a mockery of the old saying you can't have you cake and eat it too. All that growth with zero share issuance, not even a dividend reinvestment plan and massive dividends twice a year along with all the history and credibility that comes with being N.Z.'s oldest listed company. WOW that's a pretty compelling recipe !

Maybe HLG is the best gift you give yourself this Christmas ?

[Muse]

HLG a classic dividend hound stock...strong growth while paying high dividends and all without any new share issuance. Suits this semi-retired old hound "purrfectly"

Yes - no share issues in lieu of cold hard cash being issued and reported below underlying EBITDA or underlying npat, diluting the hell out of shareholders. arghh!

[Rawz]

I’m thinking a straight swap out of WHS and into HLG. Would be 10% allocation.

I try not to get too caught up with entry prices. I believe if a company is undervalued or has great growth ahead then why worry about a few cents here or there.

In saying that $7 would be nice. I like round numbers lol

[winner69]

Yes - no share issues in lieu of cold hard cash being issued and reported below underlying EBITDA or underlying npat, diluting the hell out of shareholders. arghh!

....and I can't remember when they had to ask the bank for cash .... not even for an overdraft ..... maybe never

A true cash business --- reinvest of the cash generated in new stores etc and pay decent dividends .... no worries