Quicky: L’Occitane (973 HK) after the pandemic

The company released its AR report for the FY 2021, ending March 31, 2021.

As many physical retailers, L’Occitane was negatively effected by shop closures in various regions throughout its last financial year ( FY 2021 ended March 31, 2021 ). But ‘the pandemic also led many to rediscover the importance of hygiene and wellness aroused from hand, body and skin care‘.

China, presumably, was the first country to get the pandemic under control. It did so, partially, by methods unthinkable in the western world. Recently, the (true) picture of the pandemic situation and new hot spots in China are more debatable. China grew 30%+ yoy and now contributes the most net sales. Its strategy in China seems to work well and Chinese consumers are willing to pay up for its kinds of products.

Covid resulted in a significant share of its physical retail stores being closed during various periods during FY 2021. This damped physical sales and was exacerbated by slumping tourist numbers (a strong consumer group). On the positive side, the company’s online channels were able to perform well and their relevance was probably kick-started for future years. Online channels generate a higher gross margin, less operational leverage (read stores) but require more marketing spend. Efficient use of data-driven insights gets more important.

Financials

L’Occitane achieved a gross margin of 83% (+1.4%p) and earned a profit of €157m for FY 2021 during a challenging environment, after 115m in the prior FY.

Cashflow from operations (CFFO) is reported as 429m and much higher than earnings. This is mostly due to positive working capital effects that should not be counted on to be sustainable and most of all depreciation, amortisation and impairments (190m), mostly consisting of

  • depreciation for PPE (51m) is about equal to CapEx (acquisition of PPE) for FY 2020 (ending March 2020) in a non-covid environment
  • RoU (114m) on a normal level and should be viewed as true cash cost (=rent, that could decrease with more online sales); as is
  • share based compensation or SBC (11m).

L’Occitane might still be an attractive investment if it can sustain a healthy top-line growth and improve its margins. Growth could come from Asia and higher online sales (kick-started by covid) and hopefully capitalizing on a travel rebound. Margin improvement seems achievable by optimizing its brand portfolio, optimizing its store footprint, and a successful online-strategy.

The company only releases profit numbers semi-annually, as many HK-listed companies do. L’Occitane releases sales updates on a quarterly basis. For the 3 months ending June 2021 (their Q1 FY’22 trading update) the company reported again a sales snapshot with strongly varying performance for its Western and Asian key markets.

Q1 FY’22 presentation (3m ending June 2021)

For the time being I will hold my small position and I am looking forward how the company will develop in the ‘new normal’… whatever that will be …

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