HLG - Hallenstein Glasson

[Baa_Baa]

They can carry out their business as long as they manage their debt prudently, generate cash flow and maintain a healthy balance sheet

It's like you're quoting from a text book, maybe you are, but text books are absolute, they have no context to current economy.

No they can't 'generate cashflow', if their customers dry up and/or close their wallets.

All signs are pointing towards significantly lower number of discretionary buyers and therefore revenue, and this could go on for a long time.

It would be a very brave investor to take or hold a position in discretionary retail when the economy is diving into a recession, with rising costs, and medium/longer term lower income.

[alokdhir]

Universal Store - probably the best ASX listed comparable to HLG - today announced a FY23 profit update that was below 13% consensus EBIT. Similar fast fashion segment and age profile but with a greater proportion of menswear.

They noted:
"More recently, trading conditions observed throughout April and May to date have further tightened indicating that some customers are reducing their spending. The Group expects this subdued environment to continue for the balance of FY23 and into FY24."

The SP down 25% from yesterday, which before today was down 22% from its 12 month high in January.

Finally the retail being effected by impending slowdown ...means they started feeling insecure ...final hurdle of inflation control being crossed ...RBNZ acknowledged that yesterday ...maybe in next 6 months lots will change

Your prognosis about retail stocks like HLG ....hold to see capital erode or exit for entry lower ? BGP has shown exiting and re entry maybe better option

[Valuegrowth]

Thank you so much Baa Baa for your valuable analysis. You are right. I was reading some books. I found future earnings are more important. Also a strong balance sheet, high ROE and low debt.

It's like you're quoting from a text book, maybe you are, but text books are absolute, they have no context to current economy.

No they can't 'generate cashflow', if their customers dry up and/or close their wallets.

All signs are pointing towards significantly lower number of discretionary buyers and therefore revenue, and this could go on for a long time.

It would be a very brave investor to take or hold a position in discretionary retail when the economy is diving into a recession, with rising costs, and medium/longer term lower income.

[Baa_Baa]

Thank you so much Baa Baa for your valuable analysis. You are right. I was reading some books. I found future earnings are more important. Also a strong balance sheet, high ROE and low debt.

You're welcome. HLG is a challenging share to own, it has high volatility and is cyclical, low trading volumes which means it's hard to sell or buy in quantity, but it pays a solid and so far reliable dividend. So the trade-off is whether it's better to trade HLG, or buy and hold HLG, or just don't do it at all.

My chart goes back to 2008, so let's have a look.

If you just bought and held HLG, you would have made about 6.8% capital gain (unrealised) and 15.7% pa dividends for total 22.5% pa total return (from Sharesight, past 15 years).

If you bought HLG and traded it at the highs and the lows, you'd be a genius trader, look how volatile it is over time https://invst.ly/106e4q and because we can't be certain about the timing of the trades, we can't calculate total return or whether it would be better than buy/hold.

So the thing is, buying and holding a high return share like HLG is obviously the lower risk strategy, than trading it, but because it is cyclical and so volatile, a buy and hold investor should be very keenly focused on 1. buying near the bottom of the cycle, and even more important, 2. have the stomach to not freak out and sell when the SP plunges back to it's slowly rising low trend price, which it will.

If you're into HLG, it looks better as a buy and hold share, assuming diamond hands, but arguably now is not a good time to buy as it's trading at high SP in the currently cycle.

[bull....]

another downgrade from aussie retailer today , adairs mainly furtniture , mocka in NZ but guess the point is there have been some noticeable drops in sales since april by a large number of aussie retailers lately all in the last 2 mths sales figures

[Muse]

Quite a massive minimum wage increase just announced in Australia from the fair work commission - 5.75% (for both the awards rate and minimum rate). Last year those workers on awards earning more than A$869 rec'd a 4.6% increase but those below earned an increase of A$40/wk, equating to a pay rise of 4.6% to 5.2%. Expectations earlier in the year ranged from 4-5% increase this year but started drifting up, and consensus seemed to be for a similar increase this year to last year. CBA noted a bigger increase would lead to further interest rate rises. Increase starts on 1 July.

That's a big additional pressure on overheads in an increasingly precarious operating environment. Wages a big expense, and across FY21 and FY22 averaged about 38.6% of HLG's total operating expenses, in 1H FY23 that rose to 40.3%. That's another big lift starting in HLG's FY24 financial year.

[Muse]

Yeah the same legend was convinced that the peacocks that buy glassons are immune to spending slowdowns.

well it appears the peacocks are back in the pen.

From todays smh

Australians under the age of 35 are feeling the heat from rising living costs the most, forcing them to cut back on discretionary spending as many older consumers keep shopping, new data shows.
The Commbank iQ Cost of Living Insights report released on Wednesday crunched data from 7 million Commonwealth Bank customers. It reveals consumers in their early 30s are under the most financial pressure as inflation and interest rates continue to rise.

shows that year-on-year spending for people aged under 35 increased by just 3.4 per cent between the first quarter of 2022 and the first quarter of 2023 – below the inflation figure of 7 per cent.
Under 35s cut their spending on clothing, shoes and accessories by 8.4 per cent in the first quarter of 2023, while expenditure on retail services, such as haircuts and beauty treatments, dropped by 0.6 per cent.


Over the same time period, consumers aged over 35 increased their apparel spending by 3.5 per cent, while their retail services spending jumped by 9.7 per cent.
Consumers aged older than 55 also posted year-on-year increases in their overall spending of 7.7 per cent, tracking above inflation.


link to article here but you may need to sign in to read

https://www.smh.com.au/business/comp...jobid=29651176

The underlying report here, Perky, with page 6 the salient one w/ respect to HLG
https://www.commbank.com.au/content/...May%202023.pdf

We often hear that Glasson AU customers are young and broadly don't have mortgages and therefore are immune to rising inflation, which I've regard as nearly as bogus to the thoroughly disproven claim that Noel Leeming, TP7, and Bluesheds are consumer staples and immune to the economic cycle.

Based Glassons AU website traffic data (from similarweb: https://www.similarweb.com/website/g...s.com/#traffic) we know that about 66% of those doing the online shopping (a decent proxy for customer age) are below 34%. But the CBA retail spending report shows that same age group up till March 2023 is experiencing the weakest spending across all age groups.

While those young Glasson customers don't have mortgages, they do have things like rent (according to W69 "up horrendously" at 8% run rate), utilities (gas up 26% and electricity up 15.5%), and they buy food (up 8%). That's a difficult pill to swallow when their wages are rising ~5%.
https://www.abs.gov.au/statistics/ec...latest-release

April spending data wasn't bad but there are plenty of anecdotes and data points pointing towards a rapid deceleration in May. Excess inventories and discounting are rising at the same time as rapidly rising overheads and falling same store volumes, and the NZ and AU pair rate relative to the USD are weak and will lock in future cost of goods. Retailers don't look able to pass on the full effect of rising prices either.

AU has a lot of positive things going for it and in particular immigration, but even adjusting for population growth, apparel volumes over the last 12 months (to 31 March 2023) have been 20.6% above pre covid trend. Good thing that things never revert to trend (or shoot below it during a correction).

Attachment 14619

FY23 will most likely be a record year for HLG, driven by Glassons AU 1H in particular, in my opinion. But I continue to reckon AU hit peak retail in the first half of HLG's financial year, and is unlikely to be a maintainable result with FY24 and FY25 looking challenging. True people will point to graphs of increases in marketshare, but when you steadily grow at 3 net new stores PA, the year on year growth rates when you are starting with ~20 stores (around 5 years ago) vs. growing at the same 3 stores pa when you are at 40 (roughly now), slow and rapidly deminish. Revenue growth and marketshare gains from previous periods can only rapidly fall if the store expansion rate remains the same. The worry also becomes around the viability of new stores opened during peak trading conditions, as rents are generally high when signed, volumes per store at a maximum, and the economic case may not pan out through the cycle if the assumptions prove wrong (happening right now at the Warehouse's TP7 stores).

Glassons AU a very good company and better than most...Glassons NZ and Hallensteins struggling - net net a better retailer than most, but there are many headwinds and I just hope those who piled into HLG because of all the recent pumping can reset their expectations on what may come.

As always its critical to do your own research, read, research, and look around before you buy (or sell) anything. I'm afraid a lot of spec buyers got sucked into the hype of the NZX50 inclusion and are now more or less stuck there given liquidity constrains and SP expectations.

[bull....]

Quite a massive minimum wage increase just announced in Australia from the fair work commission - 5.75% (for both the awards rate and minimum rate). Last year those workers on awards earning more than A$869 rec'd a 4.6% increase but those below earned an increase of A$40/wk, equating to a pay rise of 4.6% to 5.2%. Expectations earlier in the year ranged from 4-5% increase this year but started drifting up, and consensus seemed to be for a similar increase this year to last year. CBA noted a bigger increase would lead to further interest rate rises. Increase starts on 1 July.

That's a big additional pressure on overheads in an increasingly precarious operating environment. Wages a big expense, and across FY21 and FY22 averaged about 38.6% of HLG's total operating expenses, in 1H FY23 that rose to 40.3%. That's another big lift starting in HLG's FY24 financial year.

yep hit coming to hlg profit margin i reckon too , wont be able to offset it

as a % of sales wages have continued to rise yr on yr could be a sharp increase next yr if sales fall

lovisa got savaged yesterday mainly because they are heavily effected by wage rise

[Rawz]

Holy heck FM that’s a great post and love that chart

[winner69]

Holy heck FM that’s a great post and love that chart

Hey Rawz .... jewellery sales chart looks like that as well

Just as well things don't revert to trend eh