Vita Group (VTG) | Operational update
- Strong capital position: Cashflow has been tightly controlled, with all capex projects not underway being deferred until conditions improve. VTG’s financial position remains strong ($39m cash and $30m undrawn debt at 31 December) and management does not anticipate any short-term requirements for new equity or debt financing.
- ICT to pick up as restrictions ease: As previously announced, all of VTG’s stores have remained open and trading, whilst observing social distancing rules. Unsurprisingly, retail stores have seen reduced footfalls and supply chain disruption, which have resulted in lower revenues in April compared with the pcp. Business demand has remained relatively steady as many customers transitioned to work-from-home arrangements. With restrictions now beginning to ease, we expect that footfall and revenues will increase over coming months.
- SHAW clinics reopened: VTG’s network of clinics commenced re-opening from 11 May, In line with all relevant government directives, and has a strong pipeline of pent-up demand. Ongoing capex initiatives included the development of the Cosmedcloud platform and launching of the new Artisan App, which allows online bookings, tracking of personalised treatment plans and purchase of skincare products.
- SQDAthletica exit: VTG has also undertaken a streamlining of its channels and consequently decided to exit its SQDAthletica men’s athleisure business. Whilst significant progress had been made in establishing the brand, with its first store opening at Bondi in mid-2019, the contribution to revenue and earnings was immaterial.
- Stimulus received, costs reduced: VTG has received its first payments from the Federal government’s stimulus package (the JobKeeper wage subsidy), after payments were previously made to all eligible employees. Most support team members have been working from home and will gradually return to the Brisbane-based support centre as appropriate. Additionally, costs have been reduced in the current period through the standing down of SHAW channel employees, and some support employees taking temporary pay reductions, working reduced hours, or taking annual leave. In addition, some roles have also been eliminated as the business assesses their structure for a post-COVID environment.
Investment view: Whilst there will be some negative earnings impact from COVID-19, we believe the longer term impact on the business is likely to be minimal. Management has a strong operational track record and we believe current price levels provide an attractive entry point. BUY maintained.