Hallenstein Guidance not indicative of wider retail recovery

News that Hallenstein Glasson [HLG.NZ] has had a good half year to 24 Jan 2010 in a profit guidance to the stockmarket, shows how good management at that company have been to weather the economic downturn but that must be put in the context of a particularity bad half for the corresponding 2008 period and of course this is only a six month period - lets not count our board shorts until they are sold sort of thing. With current sales and profitability it is very likely that the company will beat 2009 full year profit of nearly NZ$13 million and that was the worst year since the 2003 full year result.

The most important part of the update is that margins for the company have improved, not easy to achieve during the seemingly endless summer sales of its competitors, and that stock levels have been managed to levels that seem to have avoided the big prices cuts of competitors who have stock to burn. Management have seen fit to boost the dividend by 40% to 14c, so they seem confident that the good news is set to continue.

A good definite cold Winter season will bode well for the coming 6 months of operation and it is this traditional slower sales season that will define a good or excellent outcome come full year reporting in August.

Retail over the last 2 years has been hard going in New Zealand and is not likely to recover to pre-recession spending for many years to come in my opinion.

Over the last 6 months many retailers have fallen by the wayside, Stax, Hill & Stewart have been but a few and some independent retailers have gone to the wall as well and we are likely to see more over 2010, so the Hallenstein profit update is by no means an indicator of a wider retail recovery.



Meanwhile the stockmarket has overreacted in a big way to this positive news (see chart above), marking up the stock price by 35c on close of trading last Friday and 15c at time of writing this post. This is more than a 10% gain in 2 days and not a wise purchase at these prices considering the uncertain overall retail outlook, even though the dividend makes the annual return at the current share price of close to 10% net.

Long term investors in this company would well be advised to wait for another opportunity, while shorts termers could see some upside in dividend stripping as we come closer to the dividend payout date.

Proceed with caution.


Disclosure: I own HLG shares in the Share Investor Portfolio


Hallenstein Glasson @ Share Investor

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