The Forager International Shares Fund has owned shares in German-based, European DIY retailer Hornbach Baumarkt (DB:HBM) since 2013. It hasn’t been a great investment. Some of its recent numbers, however, bode well for Europe as a whole.
The above chart shows like-for-like sales growth of the company’s stores outside of Germany. Those 56 stores, up from around 30 a decade ago, are in Austria, Czech Republic, Luxembourg, Netherlands, Romania, Slovakia, Sweden and Switzerland. Germany, not represented in this chart, has had some specific issues. But the trend for the rest of its European stores looks interesting.
Like-for-like sales growth is an important analytical tool for retailers. It shows how the average established store is performing, by removing the impact of newly opened stores. In this case, it also assumes no change in exchange rates where those stores sit outside the Euro currency area. So this chart shows the average growth rate of seasoned stores, on a quarterly basis compared with the same quarter a year earlier.
Growing impressively for years leading up the mid-2000s, like-for-like sales growth evaporated in the financial crisis and then turned deeply negative in the Euro crisis. It’s taken years to get back on track.
Recovery in Europe
There are quirks in the data. Some quarters have more trading days than others. Growth in the store network can distort the measure a bit (new stores take more than 12 months to ‘season’). Some winters are deep. Some summers are wet. But the past 12-18 months has clearly been the best trading environment for DIY in Europe in nearly a decade.
Perhaps it means nothing. Perhaps it’s a Draghi-inspired dragging forward of demand across Europe, with a hangover to come. But it is suggestive of a decent recovery. It also stands in stark contrast to the fact of negative interest rates in most of these countries.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.