The Good And The Bad: Important Takeaways From Hour Glass Ltd’s Latest Earnings
Hour Glass Ltd (SGX: AGS) is in the business of luxury watch retail. It has a network of 40 boutiques in Singapore, Malaysia, Thailand, Japan, Hong Kong, and Australia. Its stores carry some of the world’s finest watch brands, such as Audemars Piguet, Cartier, Hublot, IWC, Patek Philippe, TAG Heuer and more.
Just last week, Hour Glass reported its full-year results for its fiscal year ended 31 March 2017 (FY2017). There are both positive and negative takeaways from the announcement that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:
1. The overall result
Here’s a table showing some of the important items from Hour Glass’s income statement for FY2017 and FY2016:
Source: Hour Glass FY2017 full year earnings release
You can see that both revenue and profit were down for Hour Glass in FY2017. The company’s business was affected by tepid global economic growth and weaker consumer appetite for luxury watches.
2. The negatives
Firstly, Hour Glass’s gross margin fell to 22.7% in FY2017 from 23.7% a year ago. This may indicate that Hour Glass had faced some struggles in maintaining the pricing of the watches in its boutiques.
Secondly, Hour Glass appears to have a dour view of its near-term future. In its earnings release, the company said:
“Operating conditions continue to remain challenging in key markets like Singapore and Hong Kong, where visitor arrivals remain subdued. Discretionary consumption for luxury and specialty watches remains soft while a glut of inventory continues to persist in the supply chain. These will impact the market for luxury timepieces.”
3. The positive
Hour Glass ended FY2017 with a strong balance sheet. The company has S$124.8 million in cash and just S$51.2 million in debt as of 31 March 2017.
Having a strong balance sheet means that Hour Glass should not have problems sustaining its dividend for a while. It also means that the company has the resources to ride out rough times and capture growth when its industry’s condition improves in the future.