madamswer, I always take very close notice of your comments and...

madamswer, I always take very close notice of your comments and generally I agree with them. Everything you say about GXL would have been spot on a couple of years ago, but I think they have improved a lot since then. GXL's net cash from operating activities (after interest and tax) at around $75M is now around 6.5 times interest and finance costs paid.

GXL is now past the days of large takeovers and regular capital raisings to fund growth. For the last two years, it has funded organic growth in stores and vet clinics from cash flow without any capital raisings. I think there is an error in the cash flow report not showing any dividend payments, which this year would have come out of existing cash. In FY16, dividends were also funded out of cash flow, and I expect this will again occur in FY18, as cash flow increases further from maturing stores and clinics.

Also, EBITDA margins of 20-30% at maturity from its investment in stores and clinics is reasonably healthy, and should in time improve ROE.

You are spot on about the impact declining sales would have due to the largely fixed cost base. This also works in reverse and GXL has had an excellent history in growing sales at 5-10%, with SSS of around 4-5%. Whether this can happen for years to come is the million dollar question that investors need to decide on.

I was initially disappointed (as were many investors based on today's share price action) with a slightly lower EPS growth rate than I expected, until I realised they are investing in improving the customer loyalty program. It is this, and their strategy to encourage cross spending in vet and grooming services, that should protect them to a large extent when Amazon comes into the market. They already compete very well with other on-line operators and the supermarkets.

Over the last two years, GXL has generated an average of 65 cents per share of operating cash flow, which has all been reinvested in organic growth. The current share price is cheap at under $6, providing GXL sales hold up with increasing competition. It is this last issue which is the big one for investors IMO.