Universal Store Holdings: Under the hoodie - Universal tick of approval
About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Senior Analyst
- Date posted:
- 02 December 2020, 4:30 PM
- Sectors Covered:
- Consumer Discretionary (Retail)
- Universal Store Holdings (ASX:UNI) has carved out a strong competitive advantage in the youth apparel category,
benefiting from a disruptive and likely enduring shift to streetwear.
- UNI remains relatively ‘young’ in terms of both footprint and brand awareness in
newer markets like NSW/VIC, lending strong sales upside in periods to come.
We forecast a 3-year EPS CAGR of 25%, well in excess of most retail peers. There
is a likelihood this growth will be significantly weighted to FY21 as opposed to FY22
as UNI customers play catch-up post COVID and comps continue at elevated levels.
- We see UNI as having similar attributes to Lovisa Holdings Ltd (ASX:LOV) (store economics) and Baby Bunting Group (ASX:BBN) (store
immaturity). We are mindful of how successful niche retailer IPOs have been where
there is substantial store rollout still on the table and therefore scale benefits.
- Initiate with an Add rating and updated price target (login to view)
Introducing Universal Store – youth apparel retailer
From a base of 65 stores, Universal Store (UNI) is a youth apparel retailer targeting
customers aged 16-35 (who on average spend cA$86/transaction).
The emergence of
‘streetwear’ over recent years has seen growth materially outpace broader apparel trends,
something we think can continue. UNI has carved out a strong niche domestically in a
segment that has seen competitors shrink their presence.
UNI has a long track record of
strong growth, recording 5-year CAGR results of 16% store growth, 13% LFL sales
growth, 25% revenue growth and a 32% 2-year EBIT CAGR.
The things we really like about this business model
We highlight the following in terms of key attributes we think sets UNI apart:
payback of 12-14 months (close to best in class);
- 62-92% store footprint upside from
here (vs a largely mature peer set);
- Private brand penetration is at 30%; will continue
to grow and with a greater proportion of stock sourced directly, lending upside to GMs;
- UNI is still underweight the key NSW/VIC markets, providing brand awareness/sales
- Potential for lower rental terms/higher landlord contribution post
- We estimate UNI saw a cA$5m EBITDA hit due to COVID in 2H20 (net of
JobKeeper subsidy); and
- Strong cash generation will provide ample coverage of growth
initiatives and a 60-80% dividend payout.
Forecasting continued strong growth trends – 25% EPS CAGR
UNI’s store rollout profile is close to double-digit footprint growth p.a. (excl. FY21 due to
COVID). This, combined with solid LFL sales growth, GM upside and operating cost
leverage from scale, set the scene for a strong compounding growth profile.
In FY21 we
forecast EBITDA of A$40m (+48%) off the back of 25% revenue growth – obviously an
exceptional year of growth as the average young consumer plays catch up after being
sidelined by COVID. Forecasting FY22 against what will likely be a very strong FY21 comp
LFL sales will be less relevant given the base removed closed stores, making
total sales growth the key measure in 1H22 in particular. For now we assume a flat year
of growth in FY22 (2-year avg growth of c25%), but comfortably see upside.
2-year revenue growth stack (FY19A-FY21F) equates to 30%, not at all far off historical
levels. Post FY22, we assume strong growth resumes from store rollout, LFLs, GM and
Initiate with an Add rating
We value UNI at (login to view price target) and initiate with an Add rating. UNI is still ‘young’ in terms of
brand awareness and store footprint, leaving meaningful upside for incoming investors.
Based on our forecasts, UNI is trading on 13x FY21F; annualised yield of c5%.
the group can sustain a 15x+ multiple based on a superior growth profile with multiple
levers, strong cash generation/BS and attractive yield. Catalysts: Jan trading update.
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