Originally posted by madamswer
You seem to know this company very well- are they concerns re rental obligations if earnings go backwards and they need to start closing down unprofitable stores?"
In terms of your assumption that I know this company very well, take care to not mistake posting frequency with knowledge; I know this company only as well as the information it has released into the public domain.
But to set your mind at ease, my concerns relate to earnings risk, not solvency risk.
Because NCK is eminently solvent and its lease commitments quite easily manageable almost under all realistic economic scenarios.
For context, NCK's total lease commitments @ 30 June 2018 were some $102m (<12 months = $22m). NCK's market cap is in excess of $400m and it generates almost $50m in EBIT.
By comparison, a company like TRS - which some argue is less of a consumer discretionary spend business - has lease liabilities amounting to almost $300m (<12 months = $100m), and that company's market cap is a mere $75m and it's EBIT is probably running at a rate less than $10m.
So don't worry about the prospect of NCK getting into financial difficulties; that isn't going to happen, thanks to its preference to own, rather than lease, stores where it is practical to do so.
My concerns are merely around a cyclical hit to earnings.
I had to come on here and correct you.
I am sorry but your earnings risk commentary is way out.
NCK will cream consensus when it next reports
Tell me what the Sales result for H2 will be for NCK?
Do you realise Analyst consensus in Factset is +9% for the FY, and NCK has been tracking at +12% (they gave that update)?
Do you realise that implies H2 will be +6% according to NCK .... Thats laughable.
Why? Because Analysts do you understand Cycling, New Space, and that sales from NCK come 2-3 months post. Let me also ask this? What does it mean when Insiders buy stock? It tells you more than Insiders selling, as Insiders buying know more! The Chairman put $$ in.
I do not even own this stock but i know people who do and if there is one thing i know and that is how to calculate Fwd Sales.
NCK will easily do +14.1% Sales in H2, could do +17.1% Sales.
Sales is always a function of the base and what comes on from new space is most important.
A few reasons
- Consensus has H/L Sales $273.9m for FY19, representing +9% H/L, so implies H2 will be +6% (is already +12% H/L ytd).
- H2 base FY18 at +7.2% is a 670bp drop on FY17, gives a flow through benefit to H2
- Q3 last year is understated as the 3 stores opened on Boxing Day yet sales do not come until 12 weeks later due to recognition. Thats c$5.65m missing from the base.
- New space is not in H2 base of 6 new stores with 26 wks trade delivers incremental $14.7m, there is also switching behaviour from new stores not captured
- Uplifts from Yr 2 from Home Centre depot sites, yet ascribe zero anyway
- 1 new Hamilton store not in base worth $2.45m
- Cannibilisation at zero, as store network is no where near mature
- Also account for an investment of c150bp into GP, which is -1.84m detractor
Above gets +17.1%. The alternative approach is H2/H1 weight. H2 over 8 yrs is 49.4% which is $140.1m, or +14.1% YOY.
And i have not event accounted for new bedding line coming online - only removes 5 SKUs out of 80 to get it in store, and they just launched a TV blitz, which i think were some pretty funky ads.
Have you also considered NCK could well buy back stock, balance sheet is rock solid?
NCK trades now on 8.2% div yield.
NCK has a history or ROE / ROC in the Top quartile over last 5 years. No easy 2feat and space has not even reached cannibalization status.
(20min delay)