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Latest Earnings From Hour Glass Ltd: Lackluster Results Seen

Hour Glass Ltd (SGX: AGS) reported its fiscal third-quarter earnings yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

Established in 1979, Hour Glass runs mono-brand and multi-brand boutiques that retails luxury watches from prominent brands in the high horology scene like Patek Philippe and Rolex.

The company currently has a network of more than 40 stores across Asia Pacific including Singapore, Malaysia, Australia and more. You can read more about Hour Glass in here and catch up on the results from its last quarter here.

Financial highlights

The following’s a quick rundown on the latest financial figures from Hour Glass:

  1. Revenue for the reporting quarter was S$186.4 million, a very tiny decline from the S$186.5 million seen a year ago.
  2. Profit attributable to shareholders slipped by 2% year-on-year to S$14.5 million. The bottom-line was crimped by higher operating expenses that were partially mitigated by better share of results of associates (up 8% year-on-year) and a 13% decline in taxes. It should also be noted that Hour Glass had made a $2 million donation during the reporting quarter to celebrate the 50th anniversary of Singapore’s independence; this had further pressured the bottom-line.
  3. Consequently, earnings per share (EPS) for the reporting quarter saw a 1.9% decline from 2.10 cents a year ago to 2.06 cents.
  4. Cash flow from operations came in at a negative S$8.0 million with capital expenditures clocking in at S$2.0 million. This gave Hour Glass free cash flow of a negative S$10.0 million for the reporting quarter. This is a steep fall from the free cash flow of S$3.0 million seen a year ago (S$3.9 million in cash flow from operations and S$0.9 million in capex).
  5. As of 31 December 2015, Hour Glass had S$69.5 million in cash and equivalents and total borrowings of S$70.4 million. The watch retailer’s balance sheet has remained in more or less the same state compared to a year ago when it had S$75.2 million in cash and equivalents and S$76.9 million in total borrowings.

In a nutshell, Hour Glass seems to be hitting a rough patch with stagnant revenue and profit compared to the previous year. Other negative developments for the company include the negative free cash flow.

There are some areas to watch on the balance sheet front too. One is the firm’s net-debt position. The other deals with inventory. Hour Glass ended 31 December 2015 with inventory of S$346 million, up 6% from a year ago; this has happened despite the slight decline in revenue mentioned earlier.

Prospects and valuation

The company’s earnings release contained the following short paragraph on its outlook ahead:

“Headwinds in the global economy are expected to dampen consumer sentiment and the demand for luxury goods, including watches.”

The good news is that Hour Glass expects its current financial year to be a profitable one “barring any unforeseen circumstances.”

At its closing price yesterday of $0.74, Hour Glass was valued at 9 times trailing earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.