HRB H&R Block, Inc.
Sector financial performance:
This company, primarily a provider of income tax return preparation, DIY tax solutions, and other service and products related to income tax preparation, has been grouped into income tax preparation sector in professional service industry.
It seems that demand for income tax return preparation products and service of companies in this sector, according to the typical company data, has been weak and declining as indicated by the continuingly decreased comparable returns (per office) prepared by those companies or their franchise offices. However, it seems that returns started going up since 2017 by the data of some of companies that the increase in returns prepared seems to be faster than the increase in office expansion of those companies.
It seems companies in this sector has faced increasing expenses including occupancy and labor costs, which, working together with slowing growth in demand, put huge pressure on fees rate and thus profitability of companies, especially their franchised offices.
While companies have been trying to save costs by spending less or acquiring and opening more offices, their margins seem to be decreasing. The current typical gross margin is about 49% in 2017 with a higher SG&A as percentage of sales of about 30% and lower operating margin of about 19%.
The typical average stock Price/cash flow ratio is: 13. (interest/EBI ratio of 17%).
It seems that the demand for income tax related products/service of this company has been stable but growing slowly until 2017 as indicated by decreasing same office returns and the continuingly increased average fees charges in US market. Number of returns has fluctuated and thus revenue from royalty, DIY, and refund transfer has done so as well.
The revenue of most recent quarters increased 8% due to increase in returns and average charge.
The first nine months of fiscal 2018 compared with the same period of 2017
Revenue increased 8.3%.
Tax preparation fees increased 9% attributable primarily to increased average charge and increase in returns.
Royalty and DIY both increased.
The fiscal 2017 compared with 2016
Revenue decreased 0.1%.
Tax preparation fees increased 0.6% attributable primarily to increased average charge offset by declined returns.
DIY tax fees decreased 6.5% due to promotion offset by increase in returns.
Refund transfer decreased 7% due to promotions.
The fiscal 2016 compared with 2015
Revenue decreased 1.3%.
Tax preparation fees increased 1.3% attributable primarily to increased average charge offset by declined returns.
International revenue decreased 10%.
Its gross margin (including rent) has gone down from 47% to 45% since 2014 attributable to faster increase in field compensation and occupancy expenses than increase in sales. Due to the flat increase in SG&A as percentage of sales (around 21%), its operating margin went down to about 24% in 2017.
This stock currently has a stock price/cash flow ratio of 13. We think that its stock is being relatively fairly valued.
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