The post-pandemic slump in some areas of retailing ensnared Harvey Norman in the six months to December with the company revealing weaker sales and earnings, made worse by inflation and rising interest rates.
And the weakness has deepened, if anything in the first six weeks or so of 2023 with double digit falls across its Australian stores.
Harvey Norman reported a 15.1% drop in profit for the half to $365.9 million but chairman Gerry Harvey says the company is optimistic about weathering the challenging outlook.
“Amid the macroeconomic headwinds of the past year, we have grown our integrated retail, franchise, property and digital business across eight countries to nearly $5 billion in system sales for the current half-year period,” Harvey said.
Interim dividend has been lopped to 13 cents per share from 20 cents a year ago.
To make its performance look better, Harvey Norman said earnings were up 71.3% from the same period in 2021, which is an erroneous comparison seeing it has nothing to do with current trading which looks at a comparison with what was happening a year ago.
Investors spotted the weak comparison and the start to 2023 and sent the shares down more than 11% to $3.63 at one stage as they expressed concern about the weakness of the performance, the fall in January (which is always a weak month for retailers after the Christmas sales rush) especially compared to rival JB Hi Fi which reported record first half profits.
The shares closed down 7.5% at $3.85.
JB Hi Fi said earnings before income and taxes rose 14% to $479.2 million while after tax profits rose 14.6% to $329.9 million – a much stronger outcome than Harvey Norman’s performance.
Harvey Norman though does operate in areas that JB Hi Fi doesn’t – furniture and furnishings (carpet, drapes etc), household linens etc.
Harvey Norman chair Gerry Harvey said in the ASX release that that despite the challenging economic conditions, the company was focused on sustainable growth, and had continued with its strategies to improve the business during the half.
“Amid the macroeconomic headwinds of the past year, we have grown our integrated retail, franchise, property and digital business across eight countries to nearly $5 billion in system sales for the current half-year period,” he said in the statement.
Retail analysts will be concerned about the soft start to 2023.
Harvey Norman revealed sales across Australian franchise stores had fallen 10.2% compared to January 2022, while sales in New Zealand were down by 8.1%.
“Despite the macroeconomic headwinds and cost of living pressures affecting discretionary retail, our strong balance sheet and our substantial growth in net assets throughout the pandemic has left us in a solid position to withstand these challenging circumstances,” the company said.
But it wasn’t just Australia that had problems in the December half.
“Our company-operated overseas retail stores result comprises 24% of total PBT excluding net property revaluations,” Harvey said.
“Overseas retail profitability declined this half by $28.88 million, or 2.5%, to $99.60 million, primarily due to the difficult trading conditions in New Zealand, with business and consumer confidence further deteriorating this half.
“Over the past 6 months we have disclosed our intentions to recommence our offshore expansion plans, including the intention to grow the stores in Malaysia to 80 stores by the end of 2028.
“During 1H23, we opened our 28th company-operated store in Malaysia at 1 Utama Shopping Centre, Selangor and our 16th company-operated store in Ireland at Fonthill, Dublin.
“Our focus is to continue to improve our strong balance sheet, maintain solid cash reserves and low debt levels to ensure that we continue to have the capability to seize development and expansion opportunities as they arise,” Harvey said.