Australian trading helps lift Michael Hill's pretax earnings

Thursday 18th February 2010

Michael Hill International posted a 53% gain in pretax earnings in the first half as improved trading in Australia, its biggest market, helped buffer the company from the lingering effects of recession in other markets.

Earnings rose to $27.5 million in the six months ended December 31, from $17.9 million a year earlier, the company said in a statement today. Net profit slumped by two-thirds to $65.6 million, or 5.83 cents a share, reflecting a year-earlier deferred tax benefit of $52.9 million.

Shares of Michael Hill climbed 4.4% to 72 cents on the NZX and are up almost 10% in the past three months, while the NZX 50 Index is little changed. The retailer shifted its business to Australia after negotiating a pricing arrangement with the Australian Taxation Office and Inland Revenue Department. Its Australian subsidiary, Michael Hill Franchise Pty bought the intellectual property from Michael Hill Jeweller System, resulting in a one-time gain on its tax bill.

The company will pay an interim dividend of 1.5 cents a share on April 1, fully imputed for Australian shareholders but with no imputation credits for those in New Zealand.

Across the company's four markets - New Zealand, Australia, Canada, and the US - operating revenue for year rose 7.9% to $244.9 million, while same-store sales grew 4.5% despite recessionary conditions in all but the Australian market.

The Australian segment, with 143 stores, showed the strongest performance, with sales rising 6.2% to A$132.8 million and EBIT gaining 5.6% to A$24.4 million. Margin was little changed at 18.4%.

In New Zealand, sales from its 53 stores rose 5.5% while EBIT fell 4.9% to $9.4 million. The company incurred additional finance expenses by promoting finance plans to generate sales.

Canadian economic conditions remained tough, and the company's same-store sales fell 5.1% in the first half, a slower rate of decline than the 10.7% reported in the same period a year earlier. That produced an operating surplus of C$150,000.

The fledgling US operation continues to go through a restructuring as Michael Hill applies its "proven retail formula" to stores it bought in 2008. The operating loss widened to US$2.9 million in the first half from a year-earlier loss of US$1.04 million, which covered only four months of trading.

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Businesswire.co.nz

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