Date Theme Sector

29 August 2022 Financial Result Consumer Discretionary

Company

Universal Store (UNI)

O/W: “Foot traffic is up”

Recommendation OVERWEIGHT
12-mth target price (AUD) $5.50
Share price @ 26-Aug-22 (AUD) $5.00
Universal Store (UNI) reported FY22a EBIT of $30.9m, at the top end of its guidance range for Forecast 12-mth capital return 10.0%
$30.0-31.0m. Revenue was in line to slightly ahead driven by store sales which implies a return Forecast 12-mth dividend yield 4.6%
to physical stores by customers, gross margins and freight were in line but operating expenses 12-mth total shareholder return 14.6%
were slightly elevated which we attribute to COVID-19 volatility and expect to normalise. Cash
flow declined yoy driven by increased payables and timing of tax payments, but was otherwise
Market cap ($m) 366.0
strong. We believe outlook commentary implies the last few weeks of 2H22a were weaker than
Enterprise value ($m) 342.1
expected but trading conditions improved in July/August 2022. We forecast total sales growth of
+34.3% yoy in 1H23e and minor gross margin declines with private label normalising. O/W. Shares on issue (m) 73.2
Sold short (%) 0.4
 Key Points ASX All Ords weight (%) 0.0
Median turnover/day ($m) 0.4
Valuation: TP of $5.50/share (blended DCF and PE), which reflects average EPS growth of 21.0%
pa over three years. Our valuation is unchanged (vs. prev.) as our near-term NPAT downgrades
are offset by (i) stronger longer-term sales growth assumptions (Perfect Stranger roll-out) and; John Hynd
(ii) UNI’s peer set (AX1, SUL, CCX) PE multiple increasing to 13.3x (9.6x June 2022). john.hynd@wilsonsadvisory.com.au
Tel. +61 2 8247 6661
Model changes: Underlying EBIT forecasts -11.9% and -15.0% to $40.9m and $47.1m in FY23e
and FY24e respectively. Changes largely driven by lower revenue forecasts. Gross margin Tom Camilleri
upgrades partially offset, due to increased direct sourcing and stronger Private Label sales with tom.camilleri@wilsonsadvisory.com.au
strong momentum in menswear (Neovision) and Perfect Stranger (18.5% of FY23e revenue). Tel. +61 2 8247 3106

Guidance: No quantitative guidance. However, trading for the first eight weeks of FY23e has been
strong (store LFLs +7.1% yoy and total LFLs +54.7% yoy), noting store closures in July/August 12-mth price performance ($)
2021 (~47% of UNI’s store network). Online sales have moderated marginally as customers
return to store (LFL’s -0.6% yoy). UNI notes its core customer base does not appear to have been 8.50
impacted by the current macro back drop (no mortgages, school fees, etc.).
7.58

6.67
Inventory: UNI is flexible with both purchasing and discounting and managed inventory
effectively in FY22a, despite considerable COVID-19 complexities. Inventory changes were 5.75
minimal on a yoy basis (-$0.3m) and was $18.0m at 30 June 2022. While inventory achieved 4.83
$108.3m revenue in 1H22a, it reflected heavy discounting due to lockdowns. Today, UNI is less
3.92
promotional and has sufficient inventory to grow. We believe UNI is market leading at selling
through (focused on what customers want and where) with inventory days of 76 (FY22a). 3.00
Aug-21 Dec-21 Apr-22 Aug-22
UNI XAO
Perfect Stranger: UNI currently operates three stores (all in Qld.) and plans to open four by
Christmas 2022 on the east coast. We expect a further 2 stores in 2H23e. A typical Perfect 1-mth 6-mth 12-mth
Stranger store is ~120sqm and based on our assumptions should achieve annual revenue of Abs return (%) 1.0 (21.8) (35.1)
$1.2m ($10k/sqm) and EBITDA of $0.36m (EBITDA margin 29.9%). Our proprietary demographic
Rel return (%) (2.7) (21.9) (30.9)
analysis suggests there are up to 20 (16 in NSW/Vic. alone) more locations UNI could open
stores immediately (pending site availability) and likely be successful. On an annualised basis we
estimate five additional stores leads to an additional $1.8m EBITDA from FY24e (maturation). 20
mature stores could lead to an additional EBITDA of $7.2m (15.5% of FY23e EBITDA).

Financial summary (Y/E Jun, AUD) FY21A FY22A FY23E FY24E FY25E Key changes 15-Jun After Var %
Sales ($m) 210.8 208.0 248.6 265.0 280.7 Sales FY23E 267.5 248.6 -7%
Sales growth (%) 36.1 (1.3) 19.5 6.6 5.9 ($m) FY24E 284.7 265.0 -7%
NPAT norm ($m) 30.4 21.1 28.2 32.6 37.2 FY25E 307.1 280.7 -9%
Consensus NPAT ($m) 27.1 31.9 NPAT FY23E 32.0 28.2 -12%
P/E (x) 12.0 17.3 13.0 11.2 9.8 norm FY24E 38.4 32.6 -15%
FCF yield (%) 20.9 11.5 18.7 20.8 22.9 ($m) FY25E 44.8 37.2 -17%
Dividend yield (%) 3.1 4.3 4.6 5.3 6.1 Price target 5.50 5.50 0%
Rating O/W O/W
Source: Company data, Wilsons estimate, Refinitiv.
All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
29 August 2022 Consumer Discretionary
Universal Store Holdings Limited

 Business Description  Investment Thesis

Universal Store Holdings Limited (UNI) is a specialty retailer of casual
and youth apparel. It currently has 78 stores (June 2022) and an
emerging online platform. The majority of sales are third party products
which are complemented by various private label offerings. UNI
operations are limited to Australia.
UNI has an attractive product offering, a well aligned and experienced
executive team and attractive runways for growth in online, private label
and physical store numbers. While macro conditions are volatile, UNI has
a captive and relatively well capitalised customer base and a high
ASP/Margin which sets it apart from peers.

 Catalysts
1) ABS retail sales data; 2) Better than expected maturation of recently
added store network; and 3) Take-up of new online sales initiatives.
 Risks
1) A return to retail lock-down conditions impacting store site selection
plans; 2) aggressive discounting by departments stores carrying similar
ranges; 3) disappointing take-up of menswear private label offering; and
4) third parties ceasing supply arrangements.

P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 210.8 208.0 248.6 265.0 280.7 Cash & equivalents 33.4 38.8 66.3 98.6 135.6
EBITDA norm 48.7 35.7 46.6 53.2 60.3 Current receivables 2.4 3.0 3.6 3.8 4.0
EBIT norm 44.0 30.9 40.9 47.1 53.8 Current inventory 17.7 18.0 21.8 23.2 23.9
PBT norm 43.4 30.3 40.3 46.5 53.2 PPE 9.2 10.9 10.9 10.9 10.9
NPAT norm 30.4 21.1 28.2 32.6 37.2 Intangibles 92.7 93.0 93.0 93.0 93.0
NPAT reported 24.4 20.8 28.2 32.6 37.2 Other assets 48.8 39.8 39.8 39.8 39.8
EPS norm (cents) 41.5 28.8 38.5 44.5 50.9 Total assets 204.2 203.6 235.4 269.3 307.3
DPS (cents) 15.5 21.5 23.1 26.7 30.5 Current payables 17.0 17.7 21.4 22.7 23.5
Total debt 14.8 14.9 14.9 14.9 14.9
Growth (%) FY21A FY22A FY23E FY24E FY25E Other liabilities 42.4 36.2 36.2 36.2 36.2
Sales 36.1 (1.3) 19.5 6.6 5.9 Total liabilities 101.2 92.0 95.7 97.1 97.8
EBITDA norm 78.4 (26.7) 30.5 14.2 13.2 Minorities 0.0 0.0 0.0 0.0 0.0
NPAT norm 87.6 (30.6) 33.6 15.6 14.3 Shareholders equity 103.0 111.5 139.7 172.3 209.5
EPS norm (cents) 87.6 (30.6) 33.6 15.6 14.3
DPS (cents) n/m 38.7 7.5 15.6 14.3 Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
Operating cash flow 76.4 42.0 68.5 76.1 83.6
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Maintenance capex 0.0 0.0 0.0 0.0 0.0
EBITDA margin 23.1 17.2 18.7 20.1 21.5 Free cash flow 76.4 42.0 68.5 76.1 83.6
EBIT margin 20.9 14.9 16.4 17.8 19.2 Growth capex (2.6) (6.8) (6.3) (6.5) (6.5)
PBT margin 20.6 14.6 16.2 17.6 19.0 Acquisitions/disposals 0.0 0.0 0.0 0.0 0.0
NPAT margin 14.4 10.1 11.3 12.3 13.3 Dividends paid (17.3) (17.8) (17.8) (17.8) (17.8)
ROA 21.5 15.2 17.4 17.5 17.5 Other cash flow (5.4) 10.1 9.6 9.4 9.4
ROIC 52.1 35.3 46.3 53.2 60.6 Cash flow pre-financing 51.2 27.5 54.1 61.2 68.7
ROE 29.5 18.9 20.2 18.9 17.8 Funded by equity 14.7 0.0 0.0 0.0 0.0
Funded by cash/debt (29.4) 2.4 (19.4) (23.9) (28.6)
Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E
Sales 92.9 108.3 99.7 145.4 103.2 Liquidity FY21A FY22A FY23E FY24E FY25E
EBITDA norm 15.3 21.5 14.2 28.3 18.3 Cash conversion (%) 99.8 60.5 60.5 61.9 62.5
EBIT norm 12.5 19.3 11.6 24.9 16.0 Net debt ($m) (18.6) (23.9) (51.4) (83.7) (120.7)
PBT norm 13.4 19.1 11.2 24.6 15.7 Net debt / EBITDA (x) (0.4) (0.7) (1.1) (1.6) (2.0)
NPAT norm 9.3 13.8 7.3 17.2 11.0 ND / ND + Equity (%) (22.1) (27.3) (58.3) (94.6) (136.0)
NPAT reported 8.6 13.5 7.3 17.2 11.0 EBIT / Interest expense (x) 73.3 51.5 68.1 78.5 89.7
EPS norm (cents) 12.7 18.9 10.0 23.5 15.0
DPS (cents) 10.5 11.0 10.5 14.1 9.0 Valuation FY21A FY22A FY23E FY24E FY25E
EV / Sales (x) 1.6 1.6 1.3 1.1 0.9
Stock specific FY21A FY22A FY23E FY24E FY25E EV / EBITDA (x) 7.1 9.6 6.7 5.3 4.1
Number of stores 67.0 78.0 86.0 95.0 104.0 EV / EBIT (x) 7.9 11.1 7.7 6.0 4.6
GM incl. Freight (%) 58.8 58.3 57.9 58.0 59.0 P / E (x) 12.0 17.3 13.0 11.2 9.8
LFL sales growth (%) 28.5 (9.5) 1.9 2.1 2.2 P / BV (x) 3.6 3.3 2.6 2.1 1.7
Online growth (%) 89.3 38.4 (13.3) 10.0 5.0 FCF yield (%) 20.9 11.5 18.7 20.8 22.9
Private label (%) 43.5 41.6 42.1 43.7 Dividend yield (%) 3.1 4.3 4.6 5.3 6.1
Payout ratio (%) 37.3 74.6 60.0 60.0 60.0
Franking (%) 100.0 100.0 100.0 100.0 100.0
Weighted shares (m) 73.2 73.2 73.2 73.2 73.2

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in Australian Dollar (A$) unless otherwise stated.

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29 August 2022 Consumer Discretionary
Universal Store Holdings Limited

Changes to forecasts
Our NPAT forecasts -12.0% (vs. prev.) to $28.2m in FY23e, driven by the following changes:

• Total revenue: -7.1% (vs. prev.) to $248.6m driven by:

o Store revenue: -7.5% (vs. prev.) to $217.7m, largely driven by Universal Store revenue -8.5%
(vs. prev.) to $211.2m. Our lower forecasts reflect Universal Stores trading back to FY21a levels
at $2.8m per mature store (prev. $3.1m/store) as we have better clarity on the pace of recovery
from the lockdown-impacted FY22a. Our Perfect Stranger forecasts reflect the 4 new stores in
1H23e as provided in UNI’s guidance commentary, and we expect a further 2 stores in 2H22e.

o Online revenue: -4.0% (vs. prev.) to $31.0m, reflecting -13.3% yoy growth. We forecast a
normalisation in online revenue back to 12.5% of sales (FY22a 17.2% of sales), with stores now
able to trade for a full year without lockdowns.

• Gross profit margin: +113bps to 57.9%, driven by upgraded forecasts for Private Label +7,1% (vs. prev.)
to $103.3m and now reflective of 41.6% of sales in FY23e (FY22a 43.0%).

• CODB: +1.5% (vs. prev.) to $97.3m driven by; (i) Store employee costs +5.3% (vs. prev.) to $34.2m driven
by new store growth and salary increases and; (ii) General and admin costs +16.5% (vs. prev.) to $16.2m
due to elevated marketing spend recurring in FY23e. This is partially offset by corporate employee costs -
16.7% (vs. prev.) to $14.3m to reflect +7.4% yoy growth.

Figure 1: UNI old vs. new forecasts (A$m)

FY23 FY24
Old New % Change Old New % Change
Universal store revenue 230.9 211.2 -8.5% 240.8 221.7 -7.9%
Perfect Stranger store revenue 4.4 6.5 48.4% 8.4 9.2 10.1%
Online revenue 32.3 31.0 -4.0% 35.5 34.1 -4.0%
Total revenue 267.5 248.6 -7.1% 284.7 265.0 -6.9%
- Private Label revenue 96.5 103.3 7.1% 105.1 111.5 6.1%
- Third Party revenue 171.0 145.3 -15.0% 179.6 153.4 -14.6%
LFL Growth (stores) 1.8% 1.9% 4 bp 2.0% 2.1% 7 bp
Gross Profit 151.8 143.9 -5.2% 161.9 153.6 -5.2%
Gross Profit Margin 56.7% 57.9% 113 bp 56.9% 58.0% 108 bp
EBITDA 52.5 46.6 -11.3% 62.0 53.2 -14.1%
EBITDA Margin 19.6% 18.7% -90 bp 21.8% 20.1% -169 bp
D&A 6.2 5.7 -6.7% 6.5 6.1 -6.6%
EBIT 46.4 40.9 -11.9% 55.5 47.1 -15.0%
EBIT Margin 17.3% 16.4% -90 bp 19.5% 17.8% -170 bp
Interest 0.6 0.6 0.0% 0.6 0.6 0.0%
Tax 13.7 12.1 -12.0% 16.5 14.0 -15.2%
NPAT 32.0 28.2 -12.0% 38.4 32.6 -15.2%
Source: WILSe.

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29 August 2022 Consumer Discretionary
Universal Store Holdings Limited

Key charts
Figure 2: Gross profit forecasts (A$m) Figure 3: Total revenue forecasts (A$m)

180 59.0% 300.0

153.6 265.0
160 58.5% 248.6
143.9
250.0
140
123.9 121.3 58.0% 210.8 208.0
120

GP margin (%)
57.5% 200.0

Revenue A$m
100 87.6 154.9
A$m

83.2 57.0% 146.5

80 150.0
56.5%
60
100.0
56.0%
40

20 55.5%
50.0
0 55.0%
FY19a FY20a FY21a FY22a FY23e FY24e 0.0
FY19a FY20a FY21a FY22a FY23e FY24e
GP GP Margin
Revenue

Source: WILSe. Source: WILSe.

Figure 4: Store forecasts (no. of stores) Figure 5: Online revenue (A$m)

100 95
40.0 100.0%
86 35.7
90 15 34.1 90.0%
78 35.0
80 9 31.0
80.0%
67 3
70 65 30.0
61 1 25.8 70.0%
No. stores

60 25.0 60.0%

Growth (%)
A$m

50 20.0 50.0%
40 75 77 80 13.6 40.0%
15.0
30 61 65 66
30.0%
10.0 8.5
20 20.0%
10 5.0 10.0%
0 0.0 0.0%
FY19a FY20a FY21a FY22a FY23e FY24e FY19a FY20a FY21a FY22a FY23e FY24e
Online Revenue Online Revenue Growth
Universal Stores Perfect Stranger Stores Total

Source: WILSe. Source: WILSe.

Figure 6: NPAT forecasts (A$m) Figure 7: Online penetration (% of sales)

35.0 32.6 16.0% 20.0%
30.4 17.2%
14.0% 18.0%
30.0 28.2
16.0%
12.0%
25.0 14.0% 12.5% 12.9%
21.1 12.2%
10.0%
20.0 12.0%
16.2 8.0% 10.0% 8.8%
14.3
15.0
6.0% 8.0%
5.8%
10.0 6.0%
4.0%
4.0%
5.0 2.0%
2.0%
0.0 0.0% 0.0%
FY19a FY20a FY21a FY22a FY23e FY24e FY19a FY20a FY21a FY22a FY23e FY24e
NPAT NPAT Margin Online Penetration

Source: WILSe. Source: WILSe.

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29 August 2022 Consumer Discretionary
Universal Store Holdings Limited

UNI Comps
Figure 8: Uni comps table (A$m)

Company Name Mkt cap EV/EBITDA P/E (norm.) EBITDA margin

(m) FY23 FY24 FY25 FY23 FY24 FY25 FY23 FY24 FY25
Universal Store Holdings Ltd 371 6.9x 6.1x 5.8x 13.8x 11.7x 10.1x 23.1% 23.9% 22.6%
Accent Group Ltd 867 5.2x 4.7x 4.4x 13.6x 11.4x 10.4x 21.4% 21.9% 21.8%
KMD Brands Ltd 695 6.2x 5.7x 0.0x 9.7x 8.7x 8.6x 16.2% 16.7% 0.0%
Premier Investments Ltd 3,366 7.4x 7.3x 6.3x 15.9x 15.2x 13.1x 30.1% 29.6% 31.5%
Myer Holdings Ltd 416 4.7x 4.5x 4.6x 8.3x 7.4x 7.6x 14.7% 15.1% 14.4%
Super Retail Group Ltd 2,423 5.3x 5.3x 5.1x 12.1x 12.4x 11.8x 18.7% 18.6% 18.8%
Michael Hill International Ltd 403 3.9x 3.8x 0.0x 8.1x 7.9x 0.0x 19.0% 19.0% n/a
City Chic Collective Ltd 417 8.3x 7.2x 6.3x 14.3x 14.2x 10.3x 13.2% 13.8% 14.6%
Average 6.0x 5.6x 4.1x 12.0x 11.1x 9.0x 19.6% 19.8% 17.7%
Source: WILSe.

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29 August 2022 Consumer Discretionary
Universal Store Holdings Limited

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