Shares in Universal Store Holdings Ltd (ASX: UNI) are being flagged as a buy by brokers, and one is tipping that the already healthy dividend will continue to increase in the coming years.
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Solid profit result underpins strong dividend flows
The youth wear retailer on Thursday reported full-year sales of $376.1 million, up 12.9% on the previous year, and an underlying net profit of $40.5 million, up 16.3%.
A fully-franked final dividend of 17 cents per share was declared, bringing the full-year dividend payout to 43 cents per share, for a dividend yield of 5.3%.
Group Chief Executive Officer Alice Barbery said regarding the result:
The team delivered another strong full year result, with robust sales and gross margin growth. This performance reflects the continued excellence in providing our customers with on-trend products, a service-oriented experience and engaging communications. The Group is well positioned heading into FY27. Our observation is that our customer remains willing to spend on quality, on-trend clothing from brands they love. As always, we continue to focus on cost discipline as we invest in our team and system capability to support future growth.
Within the Universal Store stores, the company's private brands accounted for 51% of sales, while "a strong assortment of third-party brands continues to be a key element of presenting customers with an on-trend offering''.
So far in FY27, total sales are up 9.1% on the same period last year.
Universal Store said it intends to open 16 to 20 stores during the year, comprising nine to 10 Universal Store stores, six to eight Perfect Stranger stores, and one to two Thrills stores.
Brokers say Universal Store shares are looking cheap
UBS said the company's earnings were higher than consensus estimates and at the top end of guidance.
They said like-for-like sales so far this year were "pleasing in Universal Store and very strong in Perfect Stranger given the tough previous corresponding period''.
UBS has a price target of $9 on Universal Store shares compared to $8.07 at the time of writing.
The broker is also forecasting that the dividend yield will increase each year out to FY30, when it will be 8.7%.
RBC Capital Markets said Universal's result was good, "with clean beats on all metrics''.
The broker added that the company's gross margin outlook looks good and the balance sheet is strong.
They added:
We have no concern over management flexibility to fund the FY27 store rollout.
RBC has a price target of $9.50 on Universal Store.
Universal Store is valued at $540.9 million.
