Universal Store: Holdings Lockdowns to bite ST, LT attraction intact

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Former Senior Analyst
Date posted:
10 August 2021, 2:00 PM
Sectors Covered:
Consumer Discretionary (Retail)

  • Like most retailers, UNI’s store network has been impacted by the rolling East Coast lockdowns, particularly across Greater Sydney.
  • Using the group’s experience during the last two major lockdown events and an assumption that some of the deficit is recouped once restrictions ease (as per recent experience), we have factored in a A$11.6m/A$6.7m sales/EBITDA impact (-14%) in FY22. All other forecasts are largely unchanged.
  • Given how quickly and meaningfully sales recovered post recent lockdowns (and despite an inability to attend festivals/clubs), we are very much prepared to look through this ST impact.
  • Looking through this, UNI continues to offer meaningful store rollout upside (>55%), attractive store payback economics, GM upside from private label label/direct sourcing penetration and a net cash balance sheet.
  • Add rating maintained; (login to view) Price Target. On our CY22 estimates, UNI is trading on c14x.  

Rolling lockdowns to impact 1H22

Like most retailers, UNI’s store network has been impacted by the rolling East Coast lockdowns, particularly across Greater Sydney.

UNI’s store network (65 stores): QLD 29%; NSW 26%; ACT 3%; VIC 20%; WA 17%; SA 3%; NT 2%.  

Recent experience and thoughts

UNI previously provided detail around the sales impact from: 1) the national lockdowns in April 2021; and 2) the VIC lockdowns from late July 2021.

National lockdowns: UNI’s stores were closed for 5 weeks from early April. This impacted sales by A$15m in 2H20 (25% impact for the half). At a 56% GM, we estimate the EBITDA impact was A$8.4m (A$5.2m after net Job-Keeper benefit).

Melbourne lockdown (Jul-Sept 2021): metro Melbourne stores were closed for around 8 weeks, with sales impacted by A$6.2m. At a 57.5% GM, the EBITDA impact was A$3.6m (negligible after the net Job-Keeper benefit).  

Forecast and valuation update

With Sydney now in its 7th week of lockdown and rolling lockdowns across other States, we have lowered our forecasts in FY22.

While fluid, we have assumed the following: a 12 week lockdown in Sydney, 4 weeks in Melbourne and 2 weeks in Brisbane. We have also assumed online picks up and assists as it did during the past 2 major lockdown periods.

Based on the above (and regional exposures), we forecast a A$16.4m revenue impact and A$9.5m at EBITDA. However, the past 12 months have showed us how quickly demand bounces back when restrictions ease. We have therefore assumed that some of this deficit is recovered in late 1H22 and 2H22, forecasting a net EBITDA impact of A$6.7m (A$11.6m of sales) in FY22.

We also assume a bulk of our FY22 store rollout forecast (7) occurs in the 2H.

This sees our FY22 EBITDA forecast fall from A$52.5m to A$45.8m (-13%) while our FY23 forecasts are largely unchanged.

FY21 result expectations: we forecast FY21 revenue of A$206.2m, EBITDA of A$47m and NPAT of A$28.6m (Factset consensus: A$207m, A$46.7m and A$28.7m).

Valuation: our DCF/PE valuation is unchanged at (login to view).

Investment view

UNI remains ‘young’ in terms of its store foot print which, combined with scale benefits and GM upside (private label/direct sourcing penetration), makes for a strong growth profile.

Add rating maintained. Based on our CY22 forecasts, UNI is trading on c14x.

Risks

COVID-19/store closures; consumer sentiment; adverse fashion trends; supply chain disruption; loss of key suppliers; FX; inability to secure attractive new store locations; new entrants/increased competition in UNI’s key category; failure to acquire sufficient new customers.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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