The Hour Glass

[weijian]

Seems that the earnings jumps in recent years has come to an end, and probably due to constraints in supply.

There is nothing in the results to suggest that supply constraints is the reason (or part of it) for the end to recent years' earnings jump.

In previous 2-3 years, the supply "constraint" created by increased demand, actually improved the GPMs (by over 1000bp) and reduced the inventory turnover (by slightly over 2 months). 2H23 sees an adverse change for both GPMs and inventory turnover over the previous last 12 months.

So the high water mark for the current cycle may have passed. Looking at THG's share price over the last 12 months, it is remarkable that the ATH share price was reached ~12 months ago too. Mr Market seems to be pretty efficient and accurate here I suppose.

That said, Michael Tay welcomes the balance and moderation, just like any serious watch collector does. The latter is their true customer and only cultivating and focused on providing value to the true customer, will true lasting results follow. With low dividend payout ratios and the fact that Chairman Tay isn't young anymore, it is highly probable that OPMIs can always look forward to more "welcomed surprises".

[brattzz]

https://investors.sgx.com/company-disclo...4TFWML1ONN

THG started 91 lots share buy-back at $1.98, indicating value at this price point...let see if they buy-in consistently!

Company Announcements –Investor Portal (CDP Internet) – Singapore Exchange (SGX)

continued share buy-back at $1.97, 153 lots...

buy-buy-buy!

[brattzz]

https://investors.sgx.com/company-disclo...4TFWML1ONN

THG started 91 lots share buy-back at $1.98, indicating value at this price point...let see if they buy-in consistently!

Company Announcements –Investor Portal (CDP Internet) – Singapore Exchange (SGX)

continued share buy-back at $1.97, 153 lots...

buy-buy-buy!

continued share buy-back at $1.99, 20 lots...

[brattzz]

Share buy-backs continues,

31-5-2023 - 91 lots @ $1.98
05-06-2023 - 153 lots @ $1.97
06-06-2023 - 20 lots @ $1.99
12-06-2023 - 136 lots @ $1.99

THG continues to see value at below $2,

[weijian]

After some thinking:

Rolex's Certified Pre-Owned (CPO) programme is good for the brand as genuine customers can now buy Rolex watches (pay more for instant gratification) while enjoying the full Rolex retail experience at an AD.

Rolex's CPO programme may not be good for ADs. Margins are likely low (buying and reselling at mkt prices). More importantly it could also reduce the room for ADs to practice bundling and profit from other lesser brands.

This move by Rolex highlights a key risk of ADs. A strong brand can make unilateral decisions that can have a profound impact on your business model (bundling) and profitability. 

However and ultimately, much will depend on the ingenuity and execution of management which THG's owner-management have prove themselves to be first-class.

Perhaps this is why THG has stopped share buyback. Accumulate cash to stock up on pre-owned Rolexes.

Rolex's CPO program all make sense now. In THG's latest annual report, Chairman Tay has reminded us that Rolex is playing the LONG game. Everyone who wants to benefit needs to play the long game too.

Half of fake watches are Rolex replicas, Watchfinder CEO says

THE number of sophisticated fake watches uncovered by pre-owned dealer Watchfinder is rising, with Rolex replicas accounting for about half of the knockoffs.

As many as 10 per cent of the watches received from sellers last year were determined to be fakes during an authentication process, according to Watchfinder chief executive officer, Arjen van de Vall.

Fakes are also becoming more sophisticated and harder to spot. Watchfinder used to be able to identify about 80 per cent of bogus time pieces by sight alone but now that’s just 20 per cent, he said.

https://www.businesstimes.com.sg/lifesty...r-ceo-says

[Choon]

It seems that THG has not signed up on Rolex's CPO scheme, which is surprising. 

If it had, it would be too significant a move for it not to be mentioned in Henry Tay's chairman statement.

Hazarding a guess, it may also show that Rolex is gentleman enough to not strong-arm their ADs to join its CPO scheme.

[weijian]

It seems that THG has not signed up on Rolex's CPO scheme, which is surprising. 

If it had, it would be too significant a move for it not to be mentioned in Henry Tay's chairman statement.

Hazarding a guess, it may also show that Rolex is gentleman enough to not strong-arm their ADs to join its CPO scheme.

Illustrating the brand’s careful and long-term approach is its rollout of its certified pre-owned programme across the world that was inaugurated in Switzerland and is gradually expanding to the United States, Europe, the Middle East, and eventually, Asia. On its face, the Rolex certified pre-owned programme appears to lack short-term financial incentives for authorised retailers, but the long-term strategy can be
discerned. It appears to be a way for Rolex to weed out the less credible secondary market actors and though likely to be a project that will take many years to bear fruit, this is the Rolex way.

The above is an excerpt from AR23 wrt Rolex CPO. It suggests the CPO program hasn't come to Asia. It is probably going to be a slow roll-out with tweaks along the way as the actual implementation surfaces out all the kinks. We can assume that by the time it reaches Asia, it will be good enough and from a business perspective, you want everyone to sign up for it because you have to manage your suppliers/customers all in the same way, the Rolex way. I don't think ADs have a choice. When Rolex says so, the ADs does so.

[brattzz]

it's an entire business division and i suspect will be equal or larger in revenue, than the new sales division!
it will need certified/qualified resources setup at the ADs,

just like the automotive industries, new cars sales division versus pre-own cars division!

[Choon]

AGM next week.

Just submitted my below questions (already late) to the Company. 

Current market conditions and business performance - Chairman concluded his FY2023 Chairman Statement with the statement that “the short-term outlook has dimmed”. Could the Company provide a general commentary on how business performance has been for year-to-date FY2024? Are any of the Company’s markets showing particular weakness (e.g. Hong Kong, given the weakening Chinese economy)?
 
Near-term outlook – Over the next 2-3 years, would revenue growth be pressured/constrained by demand (due to a less hyped secondary market and a weaker global economy than in previous years) or supply (availability of watches to sell) or both? Does the Company think that there could be a glut of inventory in global wholesale networks in the years ahead (similar to the 2015-2017 period) with a consequent negative impact on the Company’s prices and margins?
 
Rolex Certified Pre-Owned – For years, the Company has deliberated on the pre-owned business and has been careful (and rightly so) not to enter the business yet. Now that Rolex has rolled out its CPO programme, would Rolex CPO be compatible or be at odds with the Company’s multi-brand retailing model? Would Rolex CPO weaken the Company’s multi-brand retailing model? Any particular reason why Asia is the last region (after US, Europe, Middle East) for Rolex CPO programme?
 
Share buyback – How does the Company prioritise between (i) maintaining a DPS of 8cts and growing it and (ii) conducting share buybacks? If there are limited funds, which would be prioritised?

[Choon]

AGM next week.

Just submitted my below questions (already late) to the Company. 

Current market conditions and business performance - Chairman concluded his FY2023 Chairman Statement with the statement that “the short-term outlook has dimmed”. Could the Company provide a general commentary on how business performance has been for year-to-date FY2024? Are any of the Company’s markets showing particular weakness (e.g. Hong Kong, given the weakening Chinese economy)?
 
Near-term outlook – Over the next 2-3 years, would revenue growth be pressured/constrained by demand (due to a less hyped secondary market and a weaker global economy than in previous years) or supply (availability of watches to sell) or both? Does the Company think that there could be a glut of inventory in global wholesale networks in the years ahead (similar to the 2015-2017 period) with a consequent negative impact on the Company’s prices and margins?
 
Rolex Certified Pre-Owned – For years, the Company has deliberated on the pre-owned business and has been careful (and rightly so) not to enter the business yet. Now that Rolex has rolled out its CPO programme, would Rolex CPO be compatible or be at odds with the Company’s multi-brand retailing model? Would Rolex CPO weaken the Company’s multi-brand retailing model? Any particular reason why Asia is the last region (after US, Europe, Middle East) for Rolex CPO programme?
 
Share buyback – How does the Company prioritise between (i) maintaining a DPS of 8cts and growing it and (ii) conducting share buybacks? If there are limited funds, which would be prioritised?

Attended the AGM, I will just share snippets of what I find interesting:

On shareholder returns, share price, dividends, share buyback:

- Michael shared that his one goal is to ensure the survivability of THG.  He is thus always thinking about how can THG add value to customers and brand partners. If THG can, THG will always be relevant. If THG can't, THG will become nothing. He hopes shareholders will share this mindset.

- On dividends vs share buyback, Michael shared that THG had historically, consistently paid out about 20%-30% earnings as dividends. My takeaway from this statement is dividend payout will probably stay at the higher of 20-30% level and 8cents/share; the Company probably wants to have much buffer so that it can continue to pay 8cents/share even if earnings decline. Excess earnings will be returned via share buybacks when market allows.