It was a gloomy Gerry Harvey who addressed shareholders in Sydney yesterday at the 2010 AGM.
So downbeat were his comments at the meeting, that the company’s shares hit a 12 month low in trading yesterday of $3.04, which is where they closed.
In fact the shares haven’t been as low since July of last year.
Mr Harvey is upset at the collapse in profits from big screen TV sales in Australia, and interest rate rises hurting consumer confidence.
Complicating matters for Harvey Norman is that the Irish economy is about to be squeezed again by the bailout and forthcoming budget cuts of 15 billion euros over the next few years.
New Zealand’s economy is still struggling and the Christchurch earthquake has apparently had a big impact on consumer sentiment in the South Island, and the sluggish recovery is making life tough elsewhere.
Now the central Australian business is being slammed by a combination of falling prices (caused by the US dollar), weak consumer demand (forcing discounting) and evaporating margins in a key growth area, big screen TVs.
According to various reports, he told the meeting that retailers were going through a tough period, with television sellers in particular struggling to make a profit.
"We are having a real dreadful period at the moment," Mr Harvey said in a response to a question at the AGM, according to a report from AAP.
He warned that the company would see a big drop in profit (already warned of in a trading and sales update earlier this month).
Sellers of flat screen televisions had experienced massive deflation in the category, with Australian retailers unlikely to profit from current sales, Mr Harvey said.
"Australia has actually demolished the pricing of this product more than any other country in the world," he said.
"The prices we are selling them at are absolutely impossible to make any money and we have demolished the price.
"The manufacturers are losing a fortune, we are losing a fortune and the category that everyone is in – flat screen TVs in Australia – is severely damaged.
"Not damaged, severely damaged," AAP quoted him as saying.
Earlier this month the company warned that it was facing a near 31% drop in pre-tax earnings for the first half of 2010-2011.
"Unaudited preliminary accounts for the period 1 July 2010 to 30 September 2010 indicate profit before tax and minority interests for the consolidated entity of $77.7 million compared to $112.4 million for the corresponding prior period, a reduction of 30.8% ($34.7 million)," the company said in a statement.
"That unaudited preliminary result reflects: start-up losses from the Clive Peeters & Rick Hart stores of approximately $14.0 million; approximately $11.4 million reduction in unrealised gains on the listed public securities held by the consolidated entity; deflation in audio / visual and computing equipment category, as confirmed by the Australian Bureau of Statistics (ABS) Consumer Price Index Report dated 27 October 2010."
Yesterday Mr Harvey said flat screen TVs was a big category for his company and the current discounting of the products would hit his company’s profits for the first half of the 2011 financial year.
"It is (an) unsolvable problem for us at the moment," he said.
"It is having a big impact on our profit because that is one of our major product categories.
"You are going to see a pretty sizeable fall in profit for the six months that we are in now and I don’t know how that is going to go in to next year."
He said the RBA lift in interest rates on November 2 and the subsequent rise in bank mortgage rates, had hit consumer confidence.
The RBA lifted the cash rate a quarter of a percentage point to 4.75%. Subsequently, the commercial banks lifted their standard variable lending rates well above the RBA’s move.
"We have noticed that since that happened on November 2," Mr Harvey said. "Pretty much every retailer has noticed it.
"We have certainly been affected with practically every category we sell.
"We’re now looking at November sales figures that are nowhere where I had hoped they would be.
"There is a big consumer lack of confidence."
