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Solving The Hour Glass 1H 2026 Profit Mystery · Investor Exchange

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  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
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  Welcome back to The Deep Dive. Today, we are putting our analytical lenses on
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  the world of luxury retail, specifically high-end timepieces.
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  We're diving into the half-year results for the Hourglass Limited, or THGL.
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  This is for the first half of their 2026 financial year, so it covers everything
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  up to September 30th, 2025.
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  And our mission today is pretty straightforward. We want to pull out the most
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  important numbers, figure out what's really driving their performance,
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  and then take a look at their own outlook for the market.
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  Especially because there's this one really interesting gap in the numbers we
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  need to get to the bottom of. Right. And as soon as you look at those top line figures, you see it.
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  The results aren't just good. They show this kind of accelerated performance.
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  They absolutely do. If you just glance at the income statement,
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  you see revenue is up by a very solid 14 percent. Which is great.
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  14 percent. It's now sitting at about $615 million for the half year.
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  But, and this is the key thing, the profit for the owners, that surged by a
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  full 23%. Okay, there it is.
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  That's the divergence we need to unpack. Revenue up 14%, profit up 23%. That's a huge gap.
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  It means they're getting more profitable faster than they're growing.
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  So the question is, how? It's not just about selling more watches. Exactly.
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  But before we get into the why, let's just quickly cement the core numbers for this first half.
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  It really confirms the quality of the growth we're seeing. Yeah.
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  Lay out the full picture for us.
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  OK, so revenue confirmed up 14 percent year over year.
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  Profit before tax shows that same accelerated trend up 23 percent.
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  It went from around 78 million to 96.6 million.
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  And the final profit number for owners saw that same 23 percent jump.
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  Precisely. You know, in luxury retail, pricing powers everything.
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  So my first question is, did they have to discount to get that 14 percent revenue growth?
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  Or do they hold the line? That's where you look at the margins.
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  And they were remarkably stable. The gross margin was 30.8% for this half.
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  And last year. Last year it was 30.7%. So, I mean, it's virtually unchanged.
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  Okay, so that tells us their cost of goods sold went up at the exact same pace as their revenue.
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  Both up about 14%. Right. They didn't sacrifice their pricing.
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  The brand desirability is clearly still there, which is just critical in this
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  market. And for anyone investing, the metric that wraps all of this up,
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  the growth and the efficiency, is earnings per share.
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  Correct. And basic and diluted EPS.
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  It reflected that efficiency gain perfectly. It saw an impressive 24% rise. 24.
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  So even a bit higher than the profit growth. Just a little. Yeah.
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  It went from 9.46 cents to 11.7 cents.
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  That's a really significant jump. So geographically, where did all this growth come from?
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  Was it all concentrated in one place? It was strong across the board,
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  really. But Southeast Asia and Oceania is still the main engine.
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  That segment brought in almost $527 million in revenue. That's up quite a bit
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  from the last period. In Northeast Asia.
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  Also very strong growth. It jumped from about $67 million to nearly $89 million.
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  So, you know, we're seeing real expansion in both of their core territories.
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  Okay, so that paints a really clear picture of a healthy operation on the top line.
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  So now let's get back to that key question, that divergence,
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  the 14 percent revenue growth versus the 23 percent profit surge.
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  Right. If their gross margin was flat.
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  The answer has to be somewhere else on the income statement,
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  what they call below-the-line items.
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  What was it? Well, you can point to two main things, but one of them had just
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  a colossal positive impact. It's all about their, let's call it financial housekeeping,
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  specifically with foreign currencies.
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  Ah, foreign exchange. That can be a huge swing factor for a global retailer like this, right?
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  A massive one. And the biggest positive surprise for them was this huge reduction
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  in foreign exchange loss.
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  So it's not a gain, it's a smaller loss. Exactly. The loss just plummeted by
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  85%. Last year, they took a hit of over $2.2 million.
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  This year, that dropped to only about $350,000. Wow.
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  Okay, so that alone added almost $2 million straight to their bottom line.
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  And they didn't have to sell a single extra watch to do it.
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  Precisely. It's like a massive headwind just vanished. That's a huge part of the puzzle right there.
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  It's the primary reason profit grew so much faster. And there was another smaller
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  boost. their share of results of associates, so income from their investments.
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  That also went up by 24%. Okay.
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  It contributed about $5.7 million. You combine better investment performance
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  with that dramatic drop in Forex losses, and there's your tailwind.
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  That's how you get to a 23% profit jump. It's fascinating because on one hand,
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  they're getting these financial efficiencies, but on the other,
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  the data shows they were spending really aggressively on expansion at the same time. Yes.
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  I'm looking at several operating cost lines that just saw these startling increases.
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  And that's the interesting contradiction here, isn't it? They were cleaning
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  up their financial P&L while pouring money into their physical footprint.
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  Which cost jump stands out most to you? For me, it has to be the rental and lease costs.
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  Rental expenses specifically shot up by nearly 90 percent, 90.
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  They went from under $3 million to over $5.4 million in six months.
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  That's a loud, loud signal that they are taking on much bigger or more expensive retail locations.
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  Nearly doubling your rent bill. That's a sign of aggressive expansion, absolutely.
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  And it locks in higher fixed costs. This is backed up by another number,
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  too, the depreciation of property, plant, and equipment. That rose by 29%.
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  Right, because you have to fit out all these new, bigger stores. Exactly.
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  Depreciation doesn't rise that fast unless you are spending a lot of money on
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  major new store fit-outs or huge refurbishments.
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  And it looks like they were scaling up the whole support structure, too.
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  I see facility costs are up by a million bucks, and professional fees also rose quite a bit.
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  They're not just opening doors. They're building out the whole operational backbone
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  needed to manage a larger, more complex network. They're clearly seizing this
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  moment of strong performance to accelerate their growth.
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  It's a big bet on the future of luxury physical retail.
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  So with all this spending, the new leases, the store fit-outs,
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  how did it affect their cash?
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  Did they burn through their reserves to fund this expansion?
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  You'd think so, wouldn't you? But not at all. This is what's really remarkable.
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  The cash-generating power of the core business is incredible.
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  Their net cash flows from operating activities...
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  More than doubled. Doubled. More
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  than doubled. It shot up from about $54 million to nearly $106 million.
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  So even while managing huge new costs, they were generating twice as much cash
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  from their day-to-day operations.
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  That just underscores how well they must be managing sales and inventory.
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  Absolutely. And those massive rental and depreciation costs you mentioned,
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  they show up very clearly on the balance sheet as assets.
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  We should look at the non-current right-of-use assets, the ROU assets.
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  And ROU assets, just to remind everyone, that represents their long-term lease commitments, right?
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  The value of being able to use those prime retails.
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  Exactly. It's a huge capital commitment. And these ROU assets just ballooned.
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  They went from around $90 million at the end of March to over $152 million by September.
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  That's an increase of more than $60 million in just six months.
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  It's definitive proof of a massive retail footprint expansion.
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  And for a luxury retailer, location is everything.
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  Committing that kind of capital to RU Assets shows they've locked down prime
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  real estate for the long haul.
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  And it wasn't just organic growth. They also made a pretty big acquisition.
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  Yes, they did. On April 30th, they acquired 100% of a company called THGRAU in Australia.
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  It cost them over $75 million in cash.
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  So what was the thinking there? Why spend that much? Their stated strategy was
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  very clear. They wanted to significantly expand their presence in Australia,
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  strengthen their footprint there, and immediately get operating synergies and
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  a bigger, high-value client base.
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  They weren't just buying stores, they were buying market position.
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  And this deal created a huge amount of what's called provisional goodwill, over $68 million.
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  Can you break down what that term actually means in this context?
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  Sure. So when you buy a company, you pay for its physical assets like inventory.
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  But sometimes you pay a premium on top of that. That premium is goodwill.
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  It represents all the intangible stuff, the brand's reputation,
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  customer relationships, future synergies.
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  Things that are on a spreadsheet. Exactly.
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  And because the deal was so close to the reporting date, the accountants are
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  still finalizing the numbers, which is why it's called provisional.
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  But it's a huge bet on the future value of that Australian business.
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  But before we get to the outlook, just quickly on working capital.
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  Inventories went up to 347 million and they took on more short term loans, about 30 million more.
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  That makes sense. You have to stock up all those new stores.
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  So inventories go up and the extra borrowing is likely to help finance the acquisition
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  and that higher level of luxury inventory.
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  It all fits the expansion story. Right.
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  So let's look forward. They've had these spectacular results,
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  this mix of financial discipline and aggressive investment.
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  What's the mood from the company about the future? Are they worried?
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  I'd say their assessment is balanced, professional.
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  They definitely acknowledge the macroeconomic risks. They mention ongoing trade
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  tensions and global uncertainties and how that can weigh on luxury consumer sentiment.
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  So they're not getting carried away. But where does their confidence come from? Their foundation.
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  They emphasize that the group relies on its strategic partnerships with the
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  biggest, most sought-after watch brands.
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  They see that as a resilient base for performance.
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  And crucially, they state that they expect to remain profitable for the full
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  financial year. It's a pretty clear statement of strength. It is.
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  Okay, finally, let's touch on what they did for shareholders during this time.
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  And there was a really important event right after the period ended. Yes.
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  So for shareholders, they kept things consistent, approving an interim dividend
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  of two cents per share, same as last year.
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  They also continued their share buyback program, buying back about $3.7 million
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  worth of their own shares.
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  And that leads us to this key announcement after September 30th.
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  It's a really important one for interpreting future results.
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  Subsequent to the period end, all 59.2 million treasury shares that the company was holding.
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  Were permanently canceled. Permanently canceled. So they've actually reduced
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  the total number of shares in existence. Yeah.
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  That's a significant move in capital management. It really is.
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  It reinforces that their focus is on share value, not just holding those shares in reserve.
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  So what's the big takeaway from all this? The takeaway is clear,
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  I think. THGL had an outstanding first half.
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  They grew revenue. They leveraged favorable financial wins, especially that huge drop in Forex loss.
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  And at the same time, they executed this incredibly aggressive strategic expansion.
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  You can see it in the soaring ROU assets and the big Australian acquisition.
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  A really compelling picture of strength and focused ambition.
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  Which brings us to our final provocative thought for you, the listener, to mull over.
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  Given the company's expectation of continued profitability and that permanent
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  cancellation of 59.2 million treasury shares, which permanently shrinks the total share pool.
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  How might that change in capital structure impact the calculation and maybe
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  even the perceived growth rate of their earnings per share in future reports?
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  It's definitely something to watch. Always look at the denominators.
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  Thanks for joining us for this deep dive. We'll catch you on the next one.