Harvey Norman Shares Hit 11-Year Low Amid “Subdued Retail Sentiment”

Gerry Harvey always waits to the last day of the interim and full-year reporting season to reveal Harvey Norman has performed – it’s a regular occurrence.

Why? Well, no one knows. It can’t be trying to hide bad news because it is always going to come out, and it is not accounting – other, larger retailers have already delivered their reports.

On Friday, the last day of the 2019-20 interim reporting season, the retailer reported a fall in pre-tax profits due to weaker local sales and higher support payments to its almost 200 franchisees.

Coming on the day when reality about the growing threat from the COVID-19 virus hit investors around the world, the weak result played into those concerns and down went the shares – falling nearly 14%% to end at $3.725, an 11-month low.

Interim profit before tax slid 4.6% to $301 million for the December half, the company said in a statement to the ASX on Friday morning. Net profit was down 4.1% to $213.5 million.

Comparable sales across all its operations edged up 1.6%, thanks to its international stores. Sales in Australia rose by the tiniest of fractions, 0.03% (which is really a fall after inflation).

Comparable sales also fell in Singapore – by 4.1% but rose 6.7% in New Zealand and more than 13% across Northern Ireland and the Irish Republic.

Harvey Norman’s overseas operations continued to be the main driver of growth, with offshore profits rising 5.4% to $81.69 million for the half.

Looking at the six months through December, sales at company-owned and franchised stores grew 1.9% to $4.07 billion.

Revenue from local franchisees, which include the Domayne and Joyce Mayne stores, fell 4.2% to $497.84 million. The group has 544 franchisees in Australia, and 194 franchised complexes.

The company blamed the bushfires which ravaged Australia over the summer, as well as drought and severe storms, all contributed to keep people from spending. Some stores in regional areas closed temporarily.

However, company-operated sales revenue, which includes 95 overseas stores was up 5.4% to $1.24 billion. The company trade in countries including Croatia, Singapore and Slovenia and opened five new stores in Malaysia during the first half.

The weakness in Australia saw the parent company forced to make $23 million in extra “tactical support payments” to affected stores to help them stay open. This also led to a drop in franchise margins from 5.3% to 4.19%.

Weak as that was, the outlook for the current year is even more alarming – the retailer sees a 3% slide in comparable sales in its Australian stores due to “subdued retail sentiment and the prolonged, unprecedented natural disasters experienced during the current period”.

That will mean a sharp fall in earnings for the half and the year.

At the same time, the coronavirus crisis will weaken offshore sales for the remainder of the year, putting a dent in consumer confidence. The virus is crippling activity across Asia and is starting to hurt the Balkans.

It was therefore understandable that Harvey Norman’s interim dividend remained flat at 12 cents. Gerry Harvey will be happy – he will get the lion’s share of the $149 million payout.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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