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The proposed merger between Chemist Warehouse and Sigma will create a business with close to $760 million of combined annual EBIT with growth of 12%-19% over the next four years. However, the first hurdle is ACCC approval which may be a drawn-out process. While there is an impressive growth profile, the prospects for rollout beyond Australia and New Zealand is still in its infancy. The upside case would see continued elevated like-for-like sales growth and a seamless integration of the Chemist Warehouse contract.

Nick Scali (NCK) - Initiation of coverage

A steady compounder

27 June 2024

Nick Scali is a furniture retailer that has exhibited consistent growth over the long term. We see the store network growing to 153 over the next four years to FY27e, a compound annual growth rate of 9%. New stores will come in both existing markets and the newly entered UK market. The opportunistic, low-cost entry into the UK sets a base from which to expand the Nick Scali brand into the UK.

Lovisa (LOV) - CEO succession plan update

Out with the old, in with the new

06 June 2024

Lovisa has extended its CEO contract for Victor Herrero to May 2025. John Cheston will be appointed as successor to take Lovisa at the start of FY26e. Mr Cheston comes from Premier Investments as Managing Director of Smiggle, overseeing its expansion into foreign markets over the last decade. With the change to CEO, we lower our Lovisa store rollout forecast in FY25 by 50 stores largely effecting the probability of an accelerated China rollout.

Domino's (DMP) - 2024 European site tours

Adapting to local markets

30 May 2024

Domino’s investor trip to Germany and France highlighted the role of online food aggregators is significant and partly explains the weakness in France and strength in Germany. Franchisee profitability can lift with higher order count which will be driven by product innovation and growth on the aggregators. While we are more positive, we have two notes of caution. Firstly, we expect the company to step back from the timelines for its long-term store growth and store growth may be 3%-5%, not 7%-9% per annum. Secondly, consensus expectations for sales growth and margin expansion need to be lowered over the next three years.

Domino's (DMP) - Brisbane strategy day

Dominance may take time

17 April 2024

Domino’s strategy day addressing its Australia/NZ and Asia segments reinforced its long-term ambition for growth. While Australia/NZ is performing well, Japan has challenges because too many stores have been opened too quickly. The issue of franchisee profitability was raised and structural challenges in Japan, Taiwan and France acknowledged by management. As a result, investors should brace for lower store growth including a lowering of the medium-term targets. Store growth of 4%-6% is more realistic than the current 7%-9% target.

Lovisa (LOV) - Initiation of coverage

Is the growth in bling priced in?

11 April 2024

We have written a detailed report on Lovisa, a global, affordable, fast fashion jewellery retailer with a strong growth opportunity. We forecast the store network to grow at a compound annual growth rate of 15% over the next four years with stores in existing and new markets. EBIT is forecast to grow at 23% annually over four years in our base case. 

Metcash (MTS) - 2024 Investor day

Accelerating growth and capex

15 March 2024

Metcash’s investor day made it clear that it is looking to accelerate growth. This growth will increasingly come from store openings and Metcash will need to spend more capex to facilitate the growth. The company is in a stronger position to grow given the profitability across the network and capability of management.

Accent Group (AX1) - 1H24 result insights

Striving for higher gross profit

28 February 2024

Accent Group reported EBIT down 21%, but down 11% when adjusting for the extra week of trading in 1H23. Strong store rollout will drive an uplift in sales, recent gross margin improvements hold but costs growth remains elevated. The challenge for Accent Group is achieving positive comp sales while holding gross margin improvement to mitigate cost inflation, especially prevalent in wages and rents. Strong cash conversion and landlord contributions assisting new store rollout means a healthy dividend payout ratio can be retained.

Domino's (DMP) - 1H24 result insights

Stabilisation is a start

23 February 2024

Domino’s 1H24 result revealed mixed information. Same store sales growth momentum has improved early in 2H24e and is an encouraging sign. However, the underlying cost growth for the business looks elevated and franchisee profitability is well below levels that will reignite store openings. While earnings may have troughed, we expect an acceleration in store growth is two years away given such low franchisee profitability.

Domino's (DMP) - Awaiting answers

Questions that need answers

14 February 2024

Domino’s company needs to clarify key issues in our view before a positive stance can be taken. We are looking for answers on whether Japan needs to pause store rollouts, the trajectory of sales in Europe and discounting intensity in Australia. There is a wide range of potential outcomes, ranging from whether Domino’s can quickly reignite store growth and pizza volumes or, more likely, store rollout struggles for another three years. Domino’s will release results on 21 February 2024.

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