Shares in integrated pet care retailer and veterinary services provider Greencross Limited (ASX: GXL) are higher today following its Annual General Meeting presentation.
The company provided a trading update for the first 16 weeks of FY2018, stating group like-for-like sales growth of 4.4% and continued expansion of retail stores and veterinary clinics in-line with management expectations.
Since Greencross began implementing its retail strategy in 2014, the company has consistently delivered like-for-like sales growth and increased outlet numbers as per stated expectations. These are important business traits for reasons I'll briefly outline.
Firstly, Greencross is growing organically and not increasing revenue simply by adding more stores. Gross profit margins were higher through FY2017 and the company raised its market footprint without significantly adding to its debt position. Greencross is therefore growing sustainably without increasing financial risk.
Furthermore, management appears to have a good understanding of market conditions and delivers on statements made to shareholders. This should instil investor confidence in the leadership team and allay fears that Greencross' expansion strategy will be unsuccessful.
Weak wage growth and higher household debt has negatively affected retail conditions in Australia, yet Greencross' performance and financial position continues to improve. The looming threat of Amazon has also weighed on numerous retailers on the ASX, though I believe Greencross is one company within the sector that will emerge relatively unscathed.
Online retail is a high-growth business segment for Greencross, but revenues are still very small in comparison to retail and veterinary services. Management believes, and I'm inclined to agree, that consumers prefer to visit Greencross' physical "one-stop-shop" platform that integrates retail with veterinary and other services like pet washing and grooming.
Greencross can also leverage its market-leading size to expand into other areas of pet care. The company is growing its fledgling pet insurance business and private label pet food brands, and recently announced a partnership with Petcloud to offer services such as dog sitting and pet taxis through an online portal.
Foolish takeaway
Despite a soft retailing environment in Australia, Greencross has been able to increase like-for-like sales, profitability and market footprint while at the same time reducing financial leverage. This suggests management is executing a sustainable growth model that should produce even better results for shareholders once domestic retail conditions improve.
