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Stronger Christmas for Michael Hill in NZ and Australia

Friday 8th January 2010

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Michael Hill International Ltd., the jewellery chain store operator, is reporting strong recovery in Australian and New Zealand same store chains in the second half of last year, according to a preliminary sales report on the last six months of calendar 2009 issued to the New Zealand stock exchange this morning.

MHI shares jumped 6.1% in early trading on the NZSX this morning, to 70 cents apiece, a level not seen since mid-October, and chief executive Mike Parsell told BusinessWire that December sales in New Zealand same store sales jumped 10% in December, compared to the depressed trading conditions a year earlier. The shares recently traded at 69 cents.

Same store sales in New Zealand dollars - the best indicator of the group's underlying performance - rose 4.4% to $221.9 million, compared with the same period last year, and suggest a significant improvement on the 0.8% rise in full year same store sales, if economic conditions continue to improve.

The MHI result is at odds with New Zealand retailers in the outdoor and general goods categories who have reported mixed trading conditions for Christmas 2009.

Trading conditions in North America, however, remained challenging, with Canadian same store sales falling 4.9% to C$12.5 million, which translated to a 12.6% fall once converted to New Zealand dollars, reflecting the largest exchange rate impact reported for the half year perod.

MHI continued to benefit from exposure to the relatively robust Australian market, where more than half the group's total revenue is generated, with same store sales up 6.2% to NZ$153.3 million, compared with only a 0.3% increase for the whole of the previous financial year. Expansion during the half year in Australia drove all store revenues up 8.8% to $163.4 million, compared with the same period a year earlier.

In New Zealand, same store sales for the six months to December were up 5.4% to $51.7 million, returning the local segment's performance for the period to roughly the levels of trading seen in the lead-up to Christmas 2007, after 7.6% fall in the six months to December 2008.

Parsell said the company's 17 United States stores, bought out of bankruptcy in Illinois and Missouri in 2008, were "some way off" breakeven, and that comparable year on year figures had yet to emerge.

Sales in the US rose 30.9% in US dollars to US$5.4 million, although this translated to a 7% increase after conversion to kiwi dollars. The jump reflected only three months' trading in the prior period, and the fact that MHI had initially engaged in low margin clearance of old stock, Parsell said.

However, US trading had been stronger in December, and the company was "very encouraged" by trading at two Chicago mall locations where stores had been subject to the company's new-look makeovers.

A full release of half-year results is scheduled for February 18.

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