How Shaver Shop became a pandemic success story

The pandemic should have been a very difficult time for retailers as they were forced to shut their doors for extended periods of time due to mandated lockdowns. And it was.

But despite that some retailers have prospered as they managed to adapt their businesses to the new reality and position themselves to capitalise on some of the unexpected behaviours that emerged from consumers.

One retailer that adapted very well was Shaver Shop (ASX:SSG). It is a small specialty retailer, focused not only on shavers but also health, beauty and personal care. Demand for these products actually increased during the disruptions of the pandemic. People couldn't go to the salon so had to start taking care of themselves.

Despite its stores being shut for large periods of time, Shaver Shop managed to quickly ramp up its online presence and capture this demand. 56% of its sales came from online in the period July to September 2021 when NSW, Victoria and ACT were in lockdown. Total sales only declined 5% despite losing 5000 in-store trading days.

This compares to online sales of only 13% prior to the pandemic. To quantify that, online sales went from $20.7 million in FY19 to $75.7 million in 2022. In addition to its own website, it operates online stores on Amazon, My Deal, eBay and Trade-Me.

As things have opened up shoppers have gradually returned to stores and in the most recent quarter only 22% of sales were from online sources.

But Shaver Shop is not just a pandemic success story. It has increased its sales every year for the last 10 years. It received a big boost from the pandemic, but it still managed to grow sales in 2022 albeit at a more modest rate of 4%, but off a much higher base.

The question now becomes can it continue to grow as the pandemic abates. The addressable market for health, beauty and personal care products is estimated to be $10 billion-plus in Australia and New Zealand. Currently Shaver Shop only account for about 3% of that. While its store network in Australia is fairly mature, with limited opportunities for new locations, there is still a large opportunity with online. In New Zealand there is more scope to expand the store network if suitable locations can be found.

Its position is strengthened by the fact that it has a lot of exclusive products. 50% of sales come from these exclusive products and it generates 60% of gross profits. It also ranks very highly on metrics of customer service.

The board has a lot of retail experience with some veterans of the industry. CEO and Managing Director Cameron Fox has been in the role since 2008 after joining Shaver Shop in 2006. This depth of retailing experience reflects in the culture of the business.

Of course, sales growth is only part of the equation. Success requires sales to translate into profits and on that front Shaver Shop is also doing well.

Its gross margins are about 44% and it generates a return on equity of 23%. Profits dipped slightly in 2022 but are well up on pre-pandemic levels and remain strong with a net profit margin of 7.5%. It pays generous dividends that are fully franked and are currently trading on a high dividend yield of 8.5%.

The balance sheet is strong with no debt, cash of $9.4 million and growing equity. Cash generation is very strong.

With a market capitalisation of $146 million Shaver Shop is considered a micro-cap stock. About 38% of shares are tightly held by key investors meaning there is a lower level of liquidity in the stock. This tends to keep a bit of a lid on the share price and it is only trading on a PE ratio of 8.9.

Given the high dividends, strong track record of sales growth and profitability it may benefit from a market re-rating at some point. If not, the dividends should still provide a pretty decent return.

Disclaimer: The author's related parties have holdings in SSG

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