WHS - Warehouse Group

[LaserEyeKiwi]

Betcha you glad you sold your shares to Joan and Nick around $4.10

You did bloody well seeing you bought most of them in the low 200's a year prior .... well done

You made the most of positive sentiment towards WHS .... pity they are likely to disappoint the market again.

I think you'll be a shareholder again ..... when the price and yield are good enough. You've nailed it when you said WHS are back to making a steady $80m/$100m (adjusted of course) - then what price do you pay for 23 cents / 28 cents earnings and maybe 20 cent divie

Also have to factor in they are sitting on somewhere around $200 million cash at present also, with zero debt. So let’s hypothetically say there is a ~10% pullback in share price, that would mean an EV value (ex-cash) of around $1.05 billion.

very fair to use a current financial year NPAT well below $100 million, conservatively even below $70 million.

$1.05 billion EV / $70 million, sounds very cheap to me, especially if there are temporary one off impacts such as the case here. Dividend yield would also remain very high if they continue there strong payout ratio backed by the very strong balance sheet.

[winner69]

Also have to factor in they are sitting on somewhere around $200 million cash at present also, with zero debt. So let’s hypothetically say there is a ~10% pullback in share price, that would mean an EV value (ex-cash) of around $1.05 billion.

very fair to use a current financial year NPAT well below $100 million, conservatively even below $70 million.

$1.05 billion EV / $70 million, sounds very cheap to me, especially if there are temporary one off impacts such as the case here. Dividend yield would also remain very high if they continue there strong payout ratio backed by the very strong balance sheet.

Cash $200m eh

We'll have to wait until March to find out but I'd hazard a guess its less than the $160m they had at 1 August

Said at AGM cash 'significantly reduced' / paid dividend of $67m / f22 capex expected $130m ....... but then they might not have replaced a lot of stock which'll help

See end of March eh

[BlackPeter]

Maybe more relevant on this thread:

I've crunched the numbers already on that thread for you. I agree its not a normal year. Normal to me for them looks like $100-$110m. About 30-32 cps...choose your own PE. I'm going with a no growth PE of 10.5 because I believe most of the big nesting spending people have been doing at Noel Leeming is behind us and FY21 was indeed a one off bonanza not to be repeated. No doubt you'll see it differently.

I guess there are always different things to see, depending on whether you look at face or tail of the same coin ;

But actually - the numbers you came up are in the same ball park as mine. Not sure, whether this is a good or a bad sign . My model comes up with an average future EPS of 35 cents ... but sure, I might be a bit optimistic (I often am :

Just to keep the discussion as well relevant for HLG (where this discussion started) ... projected average EPS in my model for HLG would be 58 cents ... which means that both shares end up with a quite similar forecasted PE (though Warehouse is still a bit cheaper). Obviously - if you think HLG will grow faster, than by all means, stay with them.

We somewhat disagree in our view on the market.com platform. While I don't know, whether it is the best possible implementation of an online market ... It is better than the original warehouse online platform - and a working online platform is crucial these days. Apart from that - I actually started using this platform (as customer) some months ago and it does work for me.

Started buying more stuff using this platform and find it much faster than amazon, kogan or any of the Chinese candidates ... and hey - saves me plenty of time driving into town. Probably not the best online platform, but it well might be good enough and has clearly potential. Shutting this platform down would be in my view a cardinals mistake ... but obviously - they need to have a plan to make it profitable ;

[Panda-NZ-]

We somewhat disagree in our view on the market.com platform. While I don't know, whether it is the best possible implementation of an online market ... It is better than the original warehouse online platform - and a working online platform is crucial these days. Apart from that - I actually started using this platform (as customer) some months ago and it does work for me.

Another way to sell items from their stores without it being too obvious that its from noel leeming, torpedo 7 etc.

[mcdongle]

Maybe you didn’t read the release yesterday? They reported record high sales over the last two months.

The negative part of yesterdays news was lower profits, not lower sales.

On 12 November 2021, the Group reported that sales for the first quarter of FY22 were 14.6% below sales for the same period in FY21, with only 2 weeks of the quarter not impacted by the COVID-19 lockdown levels. Early in the second quarter of FY22 Auckland moved to Level 3 Step 2, which allowed the Group’s Auckland stores to reopen from 10 November and removed a significant trading constraint.
For the first two months of the second quarter, Group sales were up 2.3% on FY21 and 8.6% on FY20 sales for the same period. This brought total Group sales for the five months ending 2 January to $1,465.9 million, a decrease of 5.7% or $88.8m compared to the same period in FY21, which is an improvement on the position reported in the Q1 sales update, when sales were down 14.6% or $107.7m.

Overall sales were lower......

[FTG]

Overall sales were lower......

Yip, and lest not forget that this is during a period where CPI has gone the other way (ramped + 5%pa)! Just a tad concerning.

As we know, the long-term success of a company significantly hinges on its Revenue profile.
More specifically:

-How much revenue it is generating (determined by # of units sold and avg price per unit)
-The medium to long-term growth profile of the revenue, and...
-The actual profitability (GP) generated from that revenue.

In the case of WHS, with this latest update it appears at least a couple of those touch points have now fired warning signals.
But granted, "one cold day doesn't necessarily maketh a winter".

When weighing up what to do, sometimes it's beneficial to reflect on some 1st principles for running a "successful enterprise"...

BROAD QUESTION: Does WHS have wide economic moats?

(Part) Answer: Mmmmm, across its various mastheads, WHS doesn't strike me as being a "price maker". They are probably more in the "price taker" camp?

Q: Does WHS have sort after products/services, for which demand exceeds supply?
A: During the last 18 mths (Covid times), yes. But during standard times, NO.

Q: Does WHS enjoy economies of scale?
A: Broadly speaking yes, but there are some threats on the horizon?

Q: Are WHS benefiting from Network Effects?
A: Yes to a point, but I would suggest consistent execution of the supporting strategies (e.g. themarket.com) is yet to be demonstrated.

Q: Does WHS offer products that have a high cost of switching, making customers reluctant to change & hence "sticky"?
A: Definitely NOT. The trusted brands held in their product suite are ubiquitous in the market. Whereas WHS "house brands" are NOT highly sort after and have a low cost of switching for the customer.

Q: Does WHS have high quality intangible assets; such as strong intellectual property, patents and the like, that competitors struggle to offer the same or higher quality solutions?
A: Possibly - as Waltzing alluded to previously, one could include their ERP and the online platforms & presence. BUT, I would suggest that the jury is still out to whether they have found and consistently executed the "special sauce recipe" with these assets.

Q: Is WHS (and its stable of mastheads) a powerful brand, enhancing its ‘spread’ above costs and hence Gross Margin?
A: Yes, and some good runs on the board have been achieved through synergising between the different brands (rather than as previously, cannibalising from each other!). BUT, is this recent slippage in GP a warning sign of bigger (company & market) headwinds?

Q: Does WHS have a persistent process enhancement path embedded?
A: Yes I think so, they certainly aren't afraid to give it a good crack!

Q: Does WHS nurture innovative opportunism? (This question really starts to get under the hood, addressing the ethos of the company)
A: Mmmmmm, I'll take the 5th amendment. What do you think??

In summary, WHS has made some good progress over the last couple of years, albeit aided to a degree by Covid related retail spending tailwinds. IMHO, most of the low hanging fruit has been picked for now. Both for the company and investors who are looking for continued meaningful share price appreciation.

Arguably, now the real work starts. Consistent execution of a well considered strategy is the key!

[Beagle]

The Market launched 1/8/2019 and in its first year they sold $58.1m on the platform and lost $14.7m (Source 2020 annual report)
In its second year despite the massive rise in online spending readily observable by all other retailers reports and despite lengthy lockdowns, sales through that channel reduced 17% to just $48.2m and the loss increased to $20.7m. WOW !! (Source 2021 annual report).
Yesterday they signaled "Increased investment in the market and an increase in digital spend. Hmmm

Perhaps it s a little early to call it a white elephant but relative to the extraordinary online growth by all other retailers the significant reduction in turnover and increased loss is certainly cause for real concern because in a Covid environment that prevailed in FY21 and only for a modest part of FY20 when there's been an extraordinary jump in online shopping one could reasonably have expected the market would have gained significant traction from its existing customer base and attracted new customers, not lost significant momentum.

Its certainly off to an inauspicious start and the loss of momentum suggests early platform adopters were most unimpressed. Yesterday's announcement suggests they are doubling down on their "themarket" bet. One of the reasons I sold out in early October is I was concerned that the market is going backwards...that's deeply concerning to me in the prevailing circumstances.

But hey...lets keep throwing tens of millions of dollars at it, double down and boost our digital spend by tens of millions more...what could possibly go wrong... Hmmm

Winner is right to remind us that their cash position was clearly noted by the company last year as being materially compromised by the lockdown and the subsequent payment of a ~ $60m dividend in November when the current half earnings are well south of there, together with increased capex spend means the cash on hand at the half year point will be a very long way south of the $160m they held as at balance date.

Capex spend is an interesting subject of itself. $85m in FY21 but this from the 21 annual report caught my eye. Guidance of $115m - $135m for FY22 and at that level in future years.

All the low hanging fruit has been picked. My view on valuation remains as articulated yesterday. $3.20 is where I see fair value at this point.

[Beagle]

Betcha you glad you sold your shares to Joan and Nick around $4.10

You did bloody well seeing you bought most of them in the low 200's a year prior .... well done

You made the most of positive sentiment towards WHS .... pity they are likely to disappoint the market again.

I think you'll be a shareholder again ..... when the price and yield are good enough. You've nailed it when you said WHS are back to making a steady $80m/$100m (adjusted of course) - then what price do you pay for 23 cents / 28 cents earnings and maybe 20 cent divie

Thanks Winner. Some have observed that by selling @ $4.10 I missed the 17.5 cent dividend in November but I clearly stated I had recycled that capital back into HLG at ~ $7 and picked up the 24 cent dividend there in December so it all comes out in the wash and you are absolutely right mate, I am very pleased indeed I sold.

Only time will tell if they can get critical mass with themarket. I think the fact that sales volume was going backwards in FY21 when online retail generally was going ballistic is a very ominous sign for the future. I doubt you'd ever see someone like Tim Glasson suggesting throwing around tens and tens of millions on this sort of punt...I suppose that's one of the key differences between WHS and HLG. HLG has the owners eye on it and now Stephen Tindall is no longer involved the WHS doesn't.

Its easy to bet ~ $100m, (a rough guess of the total investment and losses of themarket by FY23), on a big punt when its not your money you're betting with eh Despite the millions he's paid every year he has less shares that I held so I don't really consider his stake of 70,000 shares to be especially meaningful in the context of his huge annual salary of ~ $2.4m last year http://nzx-prod-s7fsd7f98s.s3-websit...420/356330.pdf Suppose if it doesn't work they could throw another $100m at it in FY24 and FY25 and see what happens ? Nick probably enjoys big punts like that...hope shareholders do too

Others will see it differently and that's fine.

[Waltzing]

If investment in technology for WHS is far bigger than just the market. As outlined on the FA report back last year this goes out far into Y2022 and the scope of this cant be seem by a casual glance at a report.

The market is only one part of that strategy and this group is far more complex in its product mix than a clothe retailer. To compare the 2 companies on anything other than yield is not comparing the same fruit types.

WHS is a much more complex operation from an inventory perspective and really comparing the 2 can only be done in the light of yield.

Underlying profit may well be impacted from the market but until the full year performance is in a definitive answer wont be apparent.

Which is why we reduced the position back a long way about the same time as MR B.

They can always get rid of the market but their main thrust is on enhanced global chain product management going forward and for a group like WHS thats a good thing.

[winner69]

Yes Beagle - as per AR TheMarket.com revenue in 2021 was $54.455m down from $62.520min 2020

But i've always been intrigued by the footnote -

TheMarket includes 1-day sales of $49.8 million (2020: $61.1 million) and an operating loss of $4.5 million (2020: nil)

I have no idea what this really means but if 1-day is separate from TheMArket then can you assume that TheMarket revenues were only $4.7m in 2021 and a loss of $16,5m

Then complicating matters in the sales reporting is inter-segmental elimination $13.4m - presumably sales between brands.

Not all that transparent to me

Maybe ignorance is bliss