Michael Hill profits fall 66%

Michael Hill International chairwoman Emma Hill. Photo supplied.
Michael Hill International chairwoman Emma Hill. Photo supplied.
Michael Hill International posted a 66% drop in first-half profit, mainly reflecting $A19.8million of provisions to reposition its Emma & Roe chain and to recognise costs of exiting the United States market.

The jewellery chain first flagged the provisions two weeks ago. It is exploring options for its US exit, including a sale of the business or through an agreement with landlords of its nine stores. The process is targeted to be completed by June 30.

In the first half, US revenue fell 15% to $US6million ($NZ8.2million) for a loss of $US5.6million on an earnings-before-interest-and-tax basis, including a provision for impairment and onerous leases of $US3.5million.

Emma & Roe achieved a 20% gain in sales to $A10.5million ($NZ11.2million) but recognised a $A15.2million charge for impairments and onerous leases, resulting in a $A19.6million ebit loss. Emma & Roe is being repositioned as a ``demi-fine jewellery'' chain. Redesigned stores and a new online offering are scheduled for the new financial year. There would be ``a material reduction'' in the number of stores, the company said.

For the retailer as a whole, profit dropped to $A8.7million in the six months ended December 31, from $A25.8million a year earlier. Sales from continuing operations rose 4.5% to $A342million. The company opened 14 Michael Hill stores in the first half and same-store sales edged up 0.3%. It now has a total 347 stores, including 30 in the Emma & Roe chain.

``For the period, the group increased its overall revenues and achieved same-store sales growth despite challenging retail conditions and underperformance of the US and Emma & Roe businesses,'' chief executive Phil Taylor said.

``The company's core Michael Hill businesses in Australia, New Zealand and Canada performed strongly during the first quarter before experiencing a slowdown in the second quarter, in particular, the November trading period, where sales fell short of expectations,'' he said. ``This challenging November period, combined with a heavier investment in our marketing efforts, resulted in a flat ebit result from the combined three businesses.''

Total first-half ebit dropped to $A15million from $A40million.

Michael Hill will pay an interim dividend of A2.5c a share, unchanged from a year earlier.

In its biggest market of Australia, the Brisbane-based company's revenue rose 1.8% to $A185million, although ebit fell 3.2% to $A32.6million. The company said ``challenging November trading period and increased marketing costs impacted bottom line results''.

It said the Michael Hill brand was well positioned to take market share in Australia, in what it called ``a relatively stagnant category''.

Michael Hill New Zealand recorded a 4.2% gain in sales to about $70million while ebit fell 4.6% to $15.8million. It said increased investment in marketing and higher-than-expected payment plan costs ``adversely impacted the segment's bottom line''. Its focus in the second half was ``on lifting gross margin and achieving cost efficiencies''.

Canada was the standout segment for the retailer. Sales jumped 18% to $C73.7million ($NZ79.4million), while ebit rose by the same amount to $C10.4million as it opened seven stores to bring its total to 83 and ``captured additional market share from increased awareness and brand credibility''.

Ecommerce sales surged 73% in the first half to $A5.6million, accounting for just 1.7% of group revenue.

Michael Hill's dual-listed shares last traded on the ASX at $A1.095 and have dropped 19% in the past 12 months. - BusinessDesk


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