Universal Store Shares Flat on Trading Update

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Youth apparel retailer Universal Store Holdings [ASX:UNI] provided a trading and guidance update on Wednesday.

UNI anticipates FY22 sales to be between $205 million and $207 million (down from FY21’s $210.8 million).

Underlying EBIT is expected to be between $30 million and $31 million, which was $44 million in FY21.

Like plenty of other stocks, Universal has struggled in 2022 as investors reassess their portfolios.

UNI shares are down 50% year to date. UNI shares are trading 60% off their 52-week high.

ASX:UNI stock chart universal store holdings

Source: marketindex.com

Universal Store’s FY22 Trading Update

Universal’s CEO Alice Barbery and CFO Renee Jones presented at the Macquarie Annual Emerging Leaders Conference in Brisbane this morning, updating investors on FY22 sales, trade, and EBIT guidance.

The clothing chain reported a total sales growth of 6.9% compared with H2 FY21.

Online sales grew by 27.3% in comparison with last year’s second half, and compared with this time in 2020, there was a 119.3% increase.

Year-to-date sales are down 2.3% on FY21, which has been balanced between a yin-yang effect of ‘25% of trading days being lost in H1 FY22’ (due government enforced store closures) and ‘growth in H2 sales and (78) successful new store openings’.

Also affected by mandatory store closures, Universal advised its LFL sales are ‘currently a less insightful measure’ down 2.8% year-to-date compared with 2021.

Universal said:

We are pleased with the sales momentum we are delivering in H2, including in our most recent trading results as interest rate increases and other increases in costs of living have become more apparent in the market.

As previously flagged, we have continued to invest in our people, new office and distribution centre projects, as well as improved technology – all necessary investments for scale and continued growth.

We are mindful of the “cost of doing business” challenges across supply and service chains impacting retail sector.’

The retailer reported its FY22 gross product margin rose from 58% to 61%, excluding delivery costs.

ASX:UNI plans table

Source: Universal

UNI outlook as consumer sentiment falls

Universal said it expects its FY22 sales guidance to reach between $205 million and $207 million, the range falling below UNI’s FY21 sales of $210.8 million.

Underlying EBIT is expected to be between $30 million and $31 million, well short of FY21’s reported EBIT of $44 million.

Net cash is forecasted to be more than $20 million.

Universal said that it expects ‘to finish FY22 with inventory in line with plan with aged inventory at historical levels’.

Despite forecasted lower sales and EBIT, Universal said its core customer base is ‘typically more resilient to higher energy prices and interest rates.

Although Universal did acknowledge that its core customer uses ‘buy now pay later products and parents to support spending capacity’.  

Maybe the higher resilience to rising living costs stems from parental subsidies and BNPL credit.

In an update likely to be of interest to Universal management, the Westpac-Melbourne Institute released its index of consumer sentiment on Wednesday.

Consumer sentiment fell to its lowest level since the pandemic lows in June:

Over the 46-year history of the survey, we have only seen index reads at or below this level during major economic dislocations: during COVID-19; the Global Financial Crisis; early 1990s recession; the mid-1980s slowdown and the early 1980s recession.

Those last three episodes were associated with high inflation, rising interest rates and a contracting economy – a mix that may be threatening to repeat.

Inflationary pressures are likely to see aggressive rate hikes, furthering pressuring stock prices.

But indiscriminate sell-offs can offer great prices.

Opportunities are still lurking, even in today’s market, if you know where to look.

So where do you look?

Well, our small-cap expert Callum Newman has a strategy for picking-out those ‘left-for-dead’ stocks that are most likely to bounce back.

You can find out how he does it, ‘grave-dancer’ style, here.

Regards,

Kiryll Prakapenka,

For Money Morning

 

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…