Thursday 16th July 2020
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Having temporarily closed all stores in late March 2020 due to COVID-19 restrictions, with a staggered reopening of stores since May 2020, Michael Hill International Limited (ASX/NZX: MHJ ) today announces its fourth quarter trading results, along with a business update.
• Robust return to trade during staggered reopening of stores – Adjusted1 same store sales for the quarter were down 4.1%, against prior year, underpinned by initiatives gathering momentum across the business.
• Digital sales reach new highs – For the quarter, online sales were up 193% against prior year, delivering some of the highest weeks in the Company’s history. In the quarter, a number of digital initiatives were accelerated and delivered. For the year, digital channels represented 4.6% of total sales (FY19: 2.8%).
• Margin improvement – FY20Q4 margin up 200 bps against prior year, to deliver flat profit dollars for the quarter on an adjusted1 same store sales basis.
• Full year sales – Adjusted1 same stores sales for the year were up by 2.7%, against prior year. For the nine month period to FY20Q3, adjusted1 same store sales were up 3.6%, against prior year.
• Resilient balance sheet – Net debt lower than FY19 close, through controlled working capital management and inventory levels in line with prior year.
• Branded collection sales growth continues – Branded collections represented 39.9% of total product sales for the quarter, resulting in 37.3% of total product sales for FY20 (FY19: 32.5%).
• Continued store portfolio management – 11 under-performing stores were permanently closed during the quarter (7 in Australia, 3 in New Zealand and 1 in Canada), with a network total of 290 stores across all markets.
Decisive Fiscal Management
The Company took clear and decisive action to preserve cash with an absolute focus on cost disciplines, inventory and capital management during the crisis and recovery period.
- All discretionary operating spend was paused with planned capital expenditure cancelled or deferred, other than the completion of our cloud enabled ERP platform and one flagship refurbishment.
- Across the three markets the business stood down all retail team members from late March, with a gradual return to work as stores reopened. In addition, over 100 support office team members were stood down. The Company moved swiftly to access government wage subsidies across the three markets. Michael Hill recognises and appreciates the ongoing support of these national programs for both our business and the wider community.
- Following on from the margin improvements in the first nine weeks of FY20Q3, management’s focus on margin continued through FY20Q4. As the business reopened, strategies across loyalty, digital-first and retail fundamentals underpinned margin improvement in the business.
- Furthermore, the Company has taken decisive action to emerge with a modernised agile operating structure. Reflecting on lessons learnt during COVID-19, and the ongoing transformation to a digital omni-channel retailer, the business has undertaken a restructure, delivering a leaner support office.
The Company acknowledges the impact on our team members and customers during these unprecedented times and thanks all members of the Michael Hill community for their continued support and understanding.
The Company’s intense focus on digital channels accelerated through FY20Q4.
- During the quarter, the online channels delivered significant sales growth of +193%, with margin growing at an even faster rate.
- This increased performance was supported by the accelerated delivery of a number of digital initiatives, including enhanced website and user experiences; launch of virtual appointments and virtual selling; advancements of our WeChat platform.
- The Michael Hill loyalty program Brilliance initially launched digitally in October 2019, and continues to go from strength to strength with membership now exceeding 165,000. Members receive exclusive membership pricing, welcome, birthday and anniversary rewards, as well as exclusive early access to company promotions.
Following the completion of our ERP upgrade, planning is now underway for further omni-channel enhancements enabling click and collect, ship from store, drop ship and marketplace functionality.
Global Store Network
In early May 2020, based on Government health guidance, the Company started progressively reopening stores with the majority of our global network open by early July.
Australia: From 9 May 2020, the Company trialed store openings to test instore safety protocols and gauge customer demand. Following the trial, a number of store tranches swiftly opened across Australia, with most stores open by the end of May 2020. Unfortunately, the recent outbreak of COVID-19 in Victoria has required the Company to temporarily close 7 stores – further monitoring is continuing.
New Zealand: In mid-May 2020, our New Zealand stores opened in two tranches over two consecutive weekends.
Canada: From 30 May 2020, based on local provincial guidance, the Company progressively reopened stores, starting initially in the Western provinces, then moving across the country. With Ontario more heavily impacted by COVID-19, many of the stores did not reopen until the first weekend of July.
The Company has long and established relationships with landlords in all markets and values the support received in returning to trade. Through the strength of these relationships, the Company has negotiated rental abatements and deferrals with many landlords. Negotiations continue with a number of landlords, and the Company remains confident that appropriate commercial outcomes will be reached. The company is constantly reassessing our global store network, and monitoring lower foot traffic, which in time could see further store closures.
Commenting on the result, Michael Hill International Limited, CEO Daniel Bracken said:
“Michael Hill has emerged from the pause in store trading as a leaner, stronger and more focused business. I’m very proud of the professionalism demonstrated by all our people over the last four months as we navigated the complexity of a global pandemic - whether it be the health and safety of our team and customers, new instore protocols, the unwavering focus on costs or our resilient and robust return to trade. I’m particularly pleased with our digital performance over this period, as well as the continued success of our loyalty program, Brilliance. With the implementation of the new ERP platform, together with the executives I am excited by the opportunities to enhance our omni-channel offering.
“The reopening of our store network has seen very pleasing sales and margin performance despite lower foot traffic. This reflects the dedication of our team members, the continued engagement of our loyal customers and the importance of the strategic progress we have made over the last 12 months.
“Additionally, we have continued to evaluate and assess our business, the learnings from which have been reinforced by some aspects of the global pandemic. This has allowed us the opportunity to reimagine and modernise our operating model to become a more relevant omni-channel retailer of the future. These decisions have been necessary and appropriate to ensure the health and resilience of the business and to put us in a stronger position for the future. Sadly, this has resulted in a number of non-customer facing team members departing the business. While our aim throughout has been to preserve as many jobs as possible, those who leave us will be treated with care, dignity and respect and we will be providing as much support as we can through these challenging times.
“There is no doubt that economic uncertainty will continue, given future government stimulus packages in all markets remain unclear, and ongoing volatility in consumer confidence is likely. As recent circumstances in Victoria have demonstrated, further COVID-19 outbreaks pose additional risks. With these risks in mind, Michael Hill has moved swiftly in addressing our operating model and associated cost base. Having said this, the Company has experienced a solid start to the 2021 financial year, with all markets and channels ahead of prior year.”
• The Australian segment adjusted1 same store sales were down by 8.1% for the quarter. There were 155 stores trading at the end of FY20Q4 (FY19Q4: 168).
• The New Zealand segment adjusted1 same store sales were down by 10.9% for the quarter. There were 49 stores trading at the end of FY20Q4 (FY19Q4: 52).
• The Canadian segment adjusted1 same store sales were up by 38.1% for the quarter. This is largely due to strong online sales and delayed opening of stores. There were 70 of the 86 stores trading at the end of FY20Q4 (FY19Q4: 86).
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