Story time: Why I like Greencross Limited

It’s said that every company has a story, and most of them do. Sometimes the story can be hard to follow, a little opaque, or just flat-out outrageous. Here’s one company I like with a simple, easy to follow story:

Greencross Limited (ASX: GXL)

Greencross operates vet clinics, pet retail stores, and grooming services. Most Australians will be familiar with the brand name. Over the long term, the Australian trend has been to own more pets and to spend more on them, with the $9 billion Australian pet market forecast to grow at around 3% per annum over the next few years.

The story

This is all sounding reasonable so far. Greencross currently has around 8% of the addressable market and is aiming to expand to 20% over the medium term. How will it do that?

Via acquisitions, and through the rather clever idea of co-locating vets and grooming services inside existing retail stores. Greencross has around 240 retail stores and 160-odd vets. Growth by acquisition has been slowing, and will likely remain modest for the foreseeable future, if the company is not to overpay for locations.

The company has a meaningful opportunity to increase the number of vets it owns by co-locating vets inside retail stores. It’s estimated that around 60% of retail stores have enough room for a vet inside – which means room for another 120 or so vet clinics. In-store clinics cost less to install and have a quicker payback period than external vets. They also result in customers spending more in-store.

In addition to the in-store vets, Greencross has other initiatives in the works, including a loyalty card, increasing offer of private-label (owned by Greencross) products, and online sales.

Watch this space

This information, outlined in management presentations, makes it very easy for shareholders to follow the company’s story. In the recent results, Greencross reported:

  • Loyalty club cards accounted for 87% of revenue, up from 85%
  • Online sales grew 45% (from a very low base), with basket size also increasing 8%
  • Private label sales grew to 21% of revenue, up from 20% previously
  • In-store clinics have doubled the number of customers that also shop retail
  • % of stores with in-store clinic up from 6% to 10% (remember: maximum of ~60%)
  • % of stores with a grooming salon up from 27% to 31%
  • Number of customers who shop at more than one format (Retail, Vet, and Grooming) grew 23%
  • Like-for-like sales growth of 4% at retail, 5.3% for vets

Foolish Takeaway

Not only is Greencross growing its number of stores, it’s growing the amount that each store sells (‘like-for-like’ sales), and is also increasing the amount that each customer spends in store. The company has a good chance of continuing to generate growth as vets and groomers co-locate into retail stores.

Investors should also be sure to check out the company’s balance sheet and cash flows (which have been improving) as the above story alone won’t be enough to guarantee a good investment. The story does provide an easy way to track the business’s improvements over time, however. If Greencross can continue to both grow its market share and lift same-store sales over the next 5 years, it will likely prove good value at today’s prices.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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