Today I will examine Ten Lifestyle Group Plc's (AIM:TENG) latest earnings update (31 August 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of TENG's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Did TENG's recent earnings growth beat the long-term trend and the industry?
TENG is loss-making, with the most recent trailing twelve-month earnings of -UK£8.3m (from 31 August 2019), which compared to last year has become more negative. Furthermore, the company's loss seem to be growing over time, with the five-year earnings average of -UK£5.1m. Each year, for the past five years TENG has seen an annual increase in operating expense growth, outpacing revenue growth of 17%, on average. This adverse movement is a driver of the company's inability to reach breakeven.
Viewing growth from a sector-level, the UK online retail industry has been enduring some headwinds in the previous year, leading to an average earnings drop of -7.2%. This is a significant change, given that the industry has constantly been delivering a a strong growth of 19% in the previous five years. This growth is a median of profitable companies of 7 Online Retail companies in GB including ASOS, Studio Retail Group and On the Beach Group. This means that despite the fact that Ten Lifestyle Group is currently running a loss, any recent headwind the industry is facing, Ten Lifestyle Group is relatively better-cushioned than its peers.
Since Ten Lifestyle Group is loss-making, with operating expenses (opex) growing year-on-year at 21%, it may need to raise more cash over the next year. It currently has UK£12m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedUK£52m in the latest twelve months. Although this is a relatively simplistic calculation, and Ten Lifestyle Group may reduce its costs or raise debt capital instead of coming to equity markets, the outcome of this analysis still helps us understand how sustainable the Ten Lifestyle Group’s operation is, and when things may have to change.
What does this mean?
Ten Lifestyle Group's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most useful step is to examine company-specific issues Ten Lifestyle Group may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Ten Lifestyle Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TENG’s future growth? Take a look at our free research report of analyst consensus for TENG’s outlook.
- Financial Health: Are TENG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 August 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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