WHS - Warehouse Group

[percy]

Yes interesting philosophical question.....as Clint said in "Dirty Harry".."are you feeling luck punk"? Are you a contrarian? The most profound statement ever uttered in share/stock/whatever is "BUY LOW SELL HIGH". Problem is of course is whats "high" and where is "low". Since my crystal ball has a poor track record I make a practice of never buying anything unless its at a price that is historically low when viewed over a period of 2 to 5 years. Of course it could go lower..and sometimes does but the upside is that humans like a bargain and sooner or later there will be an upsurge in interest. (disclaimer...try to ignore death spirals but as long as fundamentals are sound and your stock isnt investing in new untested territory) WHS fits this ...its a sound business aimed squarely at what the average Kiwi wants...a huge selection of goods at good prices. Times are tough globally and tough going in NZ for many...this is why WHS is successfull, has been successfull and will be sucessfull for the forseeable future. Your average share trader presumably with some disposable income is NOT the target audience for WHS..so all the comments as to service etc are irrelevant. I bought more at 2.51 and if it goes down to below 2 I'll buy more again. The dividends are where the rewards are to be had. Its impossible to pick the perfect time to buy or sell so in my view it makes more sense to buy on an "average costing" basis and now is a good time.

"average costing" ? Maybe,although I lot of successful investors are happy to add to their holding when shares reach "new highs".That way they know the direction,or trend is confirmed and the market is free of "averaging downers."

[BIRMANBOY]

"average costing" ? Maybe,although I lot of successful investors are happy to add to their holding when shares reach "new highs".That way they know the direction,or trend is confirmed and the market is free of "averaging downers."

How does one ever "know" what is in the future? How do you know its not a false signal...how do you know its not going to buck the apparent trend line and reverse? Too many unknowns for me. I am sure there are success stories but I'll leave that to those who embrace the surety? of mathematical models. KISS ..keep it simple is the way for me..if you buy low based on historical information then its got to be one of two reasons. Either the company is going down the sh**er or its fallen out of favour for some reason which is not apparent. WHS is certainly not toilet material so this leaves the the drop due to emotional/psychological/rumour/speculative reasons. Perfect opportunity to buy..for me...However for others its a clarion call to abandon ship. Each to his own.

[Snoopy]

Just had a quick look at the operational earnings per share figures.

FY2012 (Forecast): $64m/311.2m= 20.6cps
FY2011: $76.0m/311.2m= 24.4cps
FY2010: $83.4m/311.2m= 26.8cps
FY2009: $85.2m/311.2m= 27.4cps
FY2008: $80.9m/311.2m= 26.0cps

Not really a very good picture. I don't believe Warehouse is in a death spiral, but nor do I believe a turnaround is imminent. Yes if WHS were able to lift their sales by 5% ($100m) then things might turn around. However, the overall market is not expanding greatly, so that $100m in sales must be taken from others. If they were to take just half those sales back off Briscoes (for example) then Briscoes sales would have to drop back 12% to below what they were at the depths of the 2009 recession. This seems less plausible.

If WHS drop their dividend back to 21cps, effectively paying all of their forecast earnings out as dividends (a best case scenario) then we are looking at a net dividend yield of 8.4% or a gross yield of 12%. Given the uncertain outlook for the Warehouse going forward and their track record of the last five years this is probably fair. But by the same token WHS would be looking a little overpriced at $3.

I think it is always worthwhile checking out historical precedent. But the thing you are buying (in this case WHS) does change with time. Buying Warehouse today and thinking that the share price may one day get up to say $4 ever again is probably unrealistic. But as a solid part of a yield portfolio, I think WHS as an investment can still make sense.

SNOOPY

discl: do not hold

[Snoopy]

Usually it is the other way round.Bottom of the market retailers such as WHS or PPG suffer most

Well the Warehouse sales are down around 5.5% over five years

FY2012F: $1638m
FY2011: $1667.7m
FY2010: $1672.7m
FY2009: $1720.8m
FY2008: $1735.0m

As for Postie Plus
FY2012F: $113.1m
FY2011: $115.73m
FY2010: $113.77m
FY2009: $110.37m
FY2008: $107.66m

SNOOPY

[percy]

Well the Warehouse sales are down around 5.5% over five years

FY2012F: $1638m
FY2011: $1667.7m
FY2010: $1672.7m
FY2009: $1720.8m
FY2008: $1735.0m

As for Postie Plus
FY2012F: $113.1m
FY2011: $115.73m
FY2010: $113.77m
FY2009: $110.37m
FY2008: $107.66m

SNOOPY

Not a good place to be for either WHS or PPG.PPG have to give away margin for cash flow,while WHS has to give away margin to attract customers.Others such as $2 shops,Farmers,Whitcoulls and Paper Plus,Smiths City,Dick Smith,JBHiFi ,Leemings etc offer specials to keep their customers.Dick Smith and Leemings are hardly profitable,in fact shareholders had to put in more cash.
So life is not so simple for WHS who face extra wage increases,rentals,insurance etc.With decreasing turnover life starts to look very difficult.
But the real fun is with Mitre 10 Mega,and Bunnings.Let's not forget Bunnings sales of $585mil for a NPAT of $2mil.Now $2mil profit would depend on how you did your stocktake.!!!!!!!

[Snoopy]

If people think HLG compares with WHS in terms of quality they are dreaming. All it would take for HLG to go under is Uniqlo or the Gap or Zara to roll out 50 stores in nz. Which they could easily do. Could you say the same about WHS and Walmart - no. There simply aren't the sites available.

I have here the sales figures for HLG for the five years to FY2012

FY2012: $213.145m (estimate)
FY2011: $205.485m
FY2010: $207.139m
FY2009: $198.197m
FY2008: $193.748m

It is a tough retail market out there and I think those HLG sales figures are very impressive. I am not familiar with Uniqlo or the Gap or Zara but frankly I wouldn't bet against HLG in a fashion war with any of those, or anyone else really. Unlike WHS, the Glasson 'formula' is making gains in Australia.

It is a different business and a different business model compared to that which the Warehouse uses. HLG doesn't have those key real estate sites, but the HLG business model doesn't appear to need them. As a business I would rate HLG above the Warehouse. As to whether it would be a better value for money buy for the investor, that is another question.

SNOOPY

[Snoopy]

Usually it is the other way round.Bottom of the market retailers such as WHS or PPG suffer most,while middle ground HLG and top of the market retailers such as Ballantynes just cruise along.

Have just posted the annual revenue figures for HLG, and vey impressive they are too.

Ballantynes is not a listed company. But the Wellington equivalent, Kirkaldie and Staines (KRK) is listed. Here are their retail sales figures for the five years up to this one:

2012: $36.441m (estimate)
2011: $35.598m
2010: $36.585m
2009: $38.351m
2008: $40.365m

Naturally even if the Ballantynes figures were readily available they wouldn't be that useful because of the distortionary effect of the Christchurch earthquake.

But I think these figures give a lie to any illusion that upmarket retailers are less affected by recessions. On the contrary the opposite looks to be true. In percentage terms the sales decline for Kirks is twice that of the Warehouse.

SNOOPY

[percy]

On reflection I was foolish to quote Ballantynes.However I think the 'more upmarket' retailers such as BRG,HLG prove my point that they have continued to do well compared with 'down market' retailers such as WHS and PPG.
It is also interesting to note Rod Duke and Tim Glasson are both exceptional retailers.One only has to enter one of their stores to see why they do well.The stores are inviting,good displays,and the flow is good,product is good and fairly priced.Go into a Wharehouse or Postie Plus store and the opposite is the case.
Remember if you give people what they want you will get what you want.

[Snoopy]

Something screwy in your example.

NZRU earns $10 net profit on sales of 1 pallet of stock. WHS earns $10 net profit on sales of 10 pallets of stock.

Clearly all things are not equal.

In this case the NZRU margin is 10% and WHS margin is 1%

I would phrase that

"In this case the NZRU gross margin is 10% and WHS gross margin is 1%"

The management accounting term 'margin' means a different thing, which is why this kind of confusion can easily arise.

SNOOPY

[Snoopy]

On reflection I was foolish to quote Ballantynes. However I think the 'more upmarket' retailers such as BRG,HLG prove my point that they have continued to do well compared with 'down market' retailers such as WHS and PPG.
It is also interesting to note Rod Duke and Tim Glasson are both exceptional retailers.One only has to enter one of their stores to see why they do well.The stores are inviting,good displays,and the flow is good,product is good and fairly priced.Go into a Wharehouse or Postie Plus store and the opposite is the case.
Remember if you give people what they want you will get what you want.

I do agree with you about Rod Duke and Tim Glasson being exceptional retailers. However I would tend to class these two as middle market retailers rather than upmarket. There are plenty of middle market retailers out there not doing so well. Pumpkin Patch? Smiths City?

SNOOPY