Friday, July 11, 2008

Why did you buy that stock? [Hallenstein Glasson]

A 30% drop in profit forecast for the full year to August 1, put Hallenstein Glasson [HLG] in the business papers today but the company has been through bad economic times before and weathered them well.

In this Why did you buy that stock? we will first look at what management do to navigate their business through the rocky waters of the recession New Zealand is now facing.

Why did you buy that stock?

Why did you buy that stock? [Briscoe Group]
Why did you buy that stock? [Fisher & Paykel Healthcare]
Why did you buy that stock? [Pumpkin Patch Ltd]
Why did you buy that stock? [Ryman Healthcare]
Why did you buy that stock? [Michael Hill International]
Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]


The company's ability to maintain appropriate stock levels is one of the keys to retailing in general and Hallenstein Glasson do this better than probably any other New Zealand retailer.

Their focus on cost control has been one of the hallmarks of Hallensteins for the 6 years that I have been following the company and one of the main reasons for my recent purchase of the stock.

Their clothing is something my wife and I both purchase, it is generally well made, designed and fits its customer demographic year after year. Not as easy as it sounds but it requires the chain's buyers to keep abreast of changing trends and plan ahead well in advance.

Their marketing also impresses me. It is clever, witty and once again fits its customers well. It has developed its branding to perfection and management clearly know their customer and what they want. A basic for any business but in clothing retailing this is a more crucial talent to have because fashion trends change constantly.

Lets take a look at basic returns. Hallenstein Glasson have managed to pay one of the better dividends to investors of NZX listed stocks and before today's announcement the gross div was returning more than 18%. One now might expect around a 12% gross return at current share prices and that is still a considerable return given around a 9% rate for term investments.

I myself like good dividends, and only Sky City Entertainment Group [SKC], with a gross dividend, for my holding, of nearly 20%, makes HLG a good fit in the Share Investor Portfolio.

Many Kiwi retailers have made moves across the ditch to Australia and failed miserably. HLG has a small presence there, and while not proven a spectacular success their attempts at growth have been deliberate and cautious, rather than growth for the sake of it. A sign of good management and able planning. The addition earlier this year of Australian retailing queen Chief executive Shayne Quanchi, will help company plans in Australia.

Given current market conditions and an economy in dire straits, the excellent communication that management have had in the past with its shareholders, puts them clearly in the picture every time.

Well known for under promising and over delivering, management have always been upfront when it comes to relaying simple straightforward information about company progress.

Uncomplicated communication is a sign of clear management direction and even more important during the inevitable company hard times.

Finally the test I must take on whether I would continue to buy this stock. Since I only just purchased weeks ago that is probably already answering that test but I will be buying more, funds allowing, if the stock becomes cheaper.


Related Share Investor reading

Retailers are having a Christmas sale
NZ retailers ring up costs not tills


Related Links

Hallenstein Glasson- Corporate
Annual Reports
Stock Exchange Releases
Share Investor Forum - discuss HLG here

Recommended Amazon Reading

Fashion Retailing: A Multi-Channel Approach
Fashion Retailing: A Multi-Channel Approach by Ellen Diamond
Buy new: $78.23 / Used from: $7.50
Usually ships in 24 hours

c Share Investor 2008