results, page-2

The company says results will be released 13 May....

This is very late, so get ready for a shocker of a result:

1. Housing, new build and refurbs, which is a core sales driver has fallen off a cliff year to date, as interest rates increased and people became generally worried about the US situation. Look at the housing stats, construction, prices, volumes, clearance rates etc. Even Perth and Adelaide are starting to show weakness.

2. Likewise, entertainment & technology sales and in particular large ticket items like plasmas have also declined dramatically. See DJS earnings result and comments made about this by Mark McGuiness 2 weeks ago. JBH has forecast solid growth, but this is masked by new store openings and the introduction of new categories over the last year (e.g. games, pcs etc) which muddy like for like comparisons. JBH also benefits from a CODB that is c6% lower than HVN, so it gives them more scope to drop prices to push sales and still generate earnings.

3. Management focus and capital tied up in the new Stationary/Office supplies venture will be a drain. It is still early days, so this venture might have long term potential. However in the short term, Officeworks has been aggressive in trying to reduce this burgeoning competitor and you only have to look at CXP results to see that the market isn't too flash (although I acknowledge it competes in a slightly different space).

4. HVN's recent 4 years interest free promotion smacks of a desperate attempt to push sales. The sale was timed to end just before Anzac day, so I wouldn't be surprised if they announce shocking sale to 31 March, blame interest rates, but then say that it is all OK folks, sales in April were fantastic. My grandma could sell Plasmas door to door too if she offered 4 years interest free, she just wouldn't make any money!

5. Finally, and by no means the least important, HVN from what I can see HVN has increased franchise fees dramatically over the last few years. You can get away with this in a growth market. However, as things sour, HVN's franchise structure which has been the core driver of the company's success and growth, could turn out to be its Achilles heel. I am in no doubt that HVN has the best operators in the business in its franchisees. However, these guys are clever and may start to push back hard on HVN corporate to reverse recent franchise fee increases, should they start to see their fortunes waning.

I feel like we are at the top of the hill. First stop the $3.46 low, then who knows.

Note: Long term, I think the company represents a fantastic value investment. Together with JBH, they have the superior business models and the best management team in the industry.