Consensus community valuation
26/08/2024
Universal Stores reported a strong FY2024 due to a better than expected second half. Statutory EPS was 44.7 cps, beating guidance and up 45% on last year. Underlying EPS was 39.6 cps, calculated from underlying NPAT and the weighted average shares outstanding during the period (76.3M FY24 vs. 73.6M FY23).
Here are the Highlights:
• Group sales of $288.5 million, +9.7% versus prior corresponding period (“pcp”), reflecting strong trading performance, with increasing momentum throughout the financial year
• Gross profit margins +110 basis points versus pcp, to 60.1%
• Underlying EBIT of $47.1 million, +16.6% versus pcp
• Statutory net profit after tax (“NPAT”) of $34.3 million (+45.3% vs pcp)
• Underlying earnings per share (“EPS”) of 39.6 cents per share (“cps”)
• 35.5 cps fully franked dividend determined (final dividend of 19.0 cps)
• Net cash of $14.3 million as at 30 June 20243
• 102 physical store locations as at 30 June 2024, comprising 80 Universal Store sites, 14 Perfect Stranger sites, and 8 THRILLS stores
The FY25 Trading update & outlook also looks very positive as seen in the sales performance during the first seven weeks of FY25:
• US sales up +15.3%, with LFL growth up +12.5%, cycling -9.0% last year
• PS sales up +89.9%, with LFL growth up +24.2%, cycling +4.9%
• CTC’s sales in the DTC channels up +13.3%, with LFL up +22.4%, cycling +4.1%
Looking ahead management expects a further four to six Universal Store sites in FY25, plus four to six new Perfect Stranger stores as well as one to three new THRILLS stores.
The Group will continue to enhance gross margins by ensuring fresh and appealing stock, while introducing new brands and products to engage its customers. Prioritising CODB reduction through optimised productivity continues to be a focus. Additionally, investment in new stores and technology upgrades will further support long-term sustainable growth.
Summary
I like what management have been doing with the business and they seem to be ahead of the game when it comes enhancing value through brand positioning and store roll outs. The Perfect Stranger brand is showing exceptional growth.
Universal Store’s customers are a younger demographic and seem to be less affected by higher interest rates and mortgage payments. It is one retailer that is still growing in spite of the pressures on household budgets.
It would seem at this early stage that Universal Stores is in for a year of high single digit EPS growth with forward ROE over 24%.
Valuation
Using McNivens Formula and assuming the following: shareholder equity of $2.00 per share (up from $1.78 at 30/06/23), forward ROE 24%, 20% of earnings reinvested at 24%, 80% of earnings paid out as fully franked dividends (currently 5%, or 7.2% gross yield), and requiring a 12% annual return I get a valuation of $6.50.
At the current share price of $7.00 you could expect an annual return of over 11% providing the business can maintain an ROE of 24% from here.
Held IRL (2.2%)
23/07/2024
While most analysts have set a PT for Universal Stores at close to $6.50 (@Remorhaz‘s post https://strawman.com/member/forums/topic/9390?post=27623#post-27623), I’m not quite as enthusiastic. I like to leave a good margin of safety with retailers because consumer demand and sentiment can change quickly. Universal Stores is also a new kid on the block (excuse the pun)!
Universal Stores doesn’t have a long history of PE ratios to go on, so I would prefer to look at ROE stability and base my valuation on that. I expect FY24 ROE to be close to 22%. The business seems to be maintaining ROE at around this level over the last 4 years.
Modified from Commsec chart
If UNI can maintain ROE at 22%, and at a share price of $5.70 I think the business could return investors almost 12% per year going forward based on McNiven’s Formula. I am expecting this to come as a 7% grossed up yield (includes franking credits), and 5% growth. This is likely a bit conservative, but I prefer to be a bit conservative when building a position in a retailer to allow for the unexpected.
Held IRL (1.9%)
20/03/2024
Following a strong 1H24 result, and a promising trading update for the first seven weeks of 2H24, the share price has increased from $4.00 to $5.24 (up 31%). My previous valuation for Universal Store Holdings (UNI) in January this year was $4.40. Has the share price got ahead of itself, or has the business outlook materially improved to justify a higher valuation?
For 1H24 sales were up 8.5%, gross profit margins increased +80 points to 59.7%, and NPAT was up 16.7% pcp to $20.7 million, and adjusted earnings per share 26.6 cps. They held net cash of $27 million. A nice fully franked 16.5 cps dividend was declared (3.5% yield, 5% gross) up 18% pcp, and that’s for the first half only!
Six new stores opened, three of these were Perfect Stranger stores which are doing exceptionally well.
The Universal Store (US) has performed OK in a challenging half for retailers, but sales were down 1.4%. The absolute standout for UNI has been the Perfect Stranger (PS) stores. Sales growth has been exceptional.1H24 sales were $6.6 million, up 59.7% pcp. There are currently 11 PS stores, and there are plans to open another 4 - 8 stores in 2H24.
UNI have experienced uplift in sales in US (4.5%) and PS stores (56.5%) for the first seven weeks of 2H24. CTC sales are down 0.5%.
Consensus is for FY2024 NPAT of $28.46 million, or $7.76 million NPAT generated in 2H24 (27% of full year sales). This equates to $0.37 per share.
Valuation
Shareholder equity has increased to $151.3 million at 31st December 2023, or $1.97 per share. Consensus NPAT is $0.37 per share, and therefore ROE should be c. 19% this year. Assuming further rollout of the high performing Perfect Stranger stores, we could see ROE lifting to +20%. This is inline with analyst consensus and historical ROE over the past 3 years:
Source: Commsec
Using McNiven’s formula assuming Equity of $1.97 per share, ROE of 20%, 30% of Earnings reinvested, 70% of earnings paid out as fully franked dividends, and requiring an annual return of 12%, I get a valuation of $4.93, say $5.00. At a 11% required return the valuation would be $5.54. At $5.00 that puts UNI on a PE of 13.5, which is at the lower end of PE over the last 3 years.
Held IRL (1.4%)
January 2024
Universal Stores passes all my investment filters and I added some IRL on a dip in October 2023. Over the next few years I am expecting double digit earnings growth due to continued store rollouts and a forward ROE of over 20% (providing we see a soft landing in the economy). It has a very healthy balance sheet and holds more cash ($21 million) than it has debt ($15 million). I expect it will pay a 5% fully franked dividend in FY24 at a 70% payout ratio.
Like Lovisa, the Universal Store attracts a younger demographic seeking the latest fashion wear.
On a forward PE of 13x (FY24) and a PEG ratio (PE/earnings growth) of 1.2, the share price still looks reasonable at $4.40 (providing double digit earnings growth continues).
Using McNiven’s formula Universal Stores could return investors over 12% per year based on the current share price of $4.40. For an 11% return you could pay up to $5.00 per share. For a better margin of safety, I’d prefer to add shares at around $4.00, or better still wait until the next trading update and reassess expected FY24 earnings.
Held IRL (1.2%)
Universal Stores (UNI) reported a strong 1H24 result today sending the share price up 15%. Sales were up, gross profit margins up, NPAT up 16.7% pcp, net cash of $27 million, 6 new stores opened (3 Perfect Stranger which are doing exceptionally well). Nice fully franked dividend declared yielding 3.5% (5% including franking credits) for this half only! :) They generally plough back c.30% of their earnings back into growth and that’s likely to be on a ROE upwards of 20%.
I tuned into the end of the webinar during question time (following the Lovisa call) and I was blown away by the enthusiasm of these two young women leading the Universal team. They really have their heads around the business, their passion and smiles were infectious, and the business culture at Universal seems to be really positive. I am pleased I invested when the market was negative on their prospects.
CEO Alice Barberry, and CFO Renee Jones at the results webinar this morning (22/02/2024)
Commenting on the results, Alice said:
“The results in the half demonstrate our resilience and ability to manage our business as macro-economic conditions fluctuate. Our team has successfully managed margins, inventory, and operating costs to deliver earnings growth in a difficult and subdued consumer spending environment. Our growth ambitions for Universal Store remain unchanged, as does our long-term strategy.
I am also pleased with the progress we continue to make in developing our emerging retail concepts – Perfect Stranger and THRILLS. These brands and retail formats are continuously improving their offerings and adding the capabilities necessary to successfully scale and deliver attractive financial performance over the years ahead."
Here are the highlights from the Announcement:
• Group sales of $158.0 million, +8.5% versus prior corresponding period (“pcp”), primarily reflecting added CTC contribution
- Universal Store (US) sales of $133.2m (-1.4% vs pcp), LFL sales -5.4%2
- Perfect Stranger sales of $6.6 million (+59.7% vs pcp)
- CTC sales of $25.3m (+4.2% proforma vs pcp)
• Gross profit margins +80 basis points versus pcp, to 59.7%
• Underlying EBIT of $30.8 million, +8.1% versus pcp4
• Statutory net profit after tax (“NPAT”) of $20.7 million (+16.7% versus pcp)
• Adjusted earnings per share (“EPS”) of 26.6 cents per share (“cps”)
• Net cash of $27.4 million as at 31 December 2023
• 6 new stores opened during H1 FY24; 3 Perfect Stranger (“PS”), 2 Universal Stores (“US”) & 1 THRILLS store, bringing total Group stores to 100 (excl. webstores)
• Interim FY24 dividend of 16.5cps declared (up from 14.0cps in prior year).
-ENDS-
More later with another crack at the valuation.
Disc: Held IRL (1.2%)