Thanks; for clarity I believe there is a business here that is fundamentally worth many times more than around 2 times ebitda or 8% of annual revenue.
If an attempt was made to build a retail business from scratch which generates $800m a year in revenue, there is absolutely no doubt one would have to spend a lot more than $65m to get there, whether by acquisition or by chewing start up costs through an income statement. This is the great inherent value here.
In actually makes a lot of sense for Amazon Australia to buy this outfit out for a measly $100m to give them an immediate $800m revenue bricks and mortar and 11% online penetration play in clothing in this country, at the discounted end of the market they particularly specialize in. Think Wholefoods acquisition in the US.
The existing leadership has failed the business, the CEO appears to be relying on his shareholding for protection despite long tenure and a 34 cent share price to show for it over a decade of doing the job; given prolonged poor performance, the other directors are not adding much value and overall governance is not up to scratch. I personally can't envisage the Chair having the will to bullet the CEO.
The AFR talks today about Henry at the NAB being open to his CEO about the day he will have to dispose of him in the long term interests of the company. Can't see this happening at SFH.
The post year end trading commentary raises more questions than answers; is one meant to deduce the company will make more or less money than the prior year in the first half? Poor communication.
The company is on the receiving end of a lot of bad employee sentiment and the core product offering remains unattractive. This is why consumers are not prepared to pay any form of reasonable premium, why should they? Issues within need resolution otherwise won't be able to press forward and that means addressing the problems on the floor as well. There are many current fashion retail success stories (Noni B, Zara's etc) to point to so excuses of soft consumer sentiment don't cut it. The business needs significant restructure.
The positives in addition to the basic valuation support are that benefits of loss making store closures, increasing online penetration rates/customer channel conversion are still to be unrealized, along with a stronger currency in progress.
The investment community appears to have lost faith in the current leadership's ability to carry out the restructuring required, to cut deeply into overhead costs and loss making stores, improve the product offering which includes moving away from a seasonal build and dump strategy that has drugged its customers into a buy only on discount mentality.
I hope the directors and major shareholders properly get behind the group soon to make it the real success it can be.
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