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Michael Hill lifts 1H profit 3.4% on jewellery chain expansion

Friday 17th February 2017

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Michael Hill International, the jewellery chain business founded by its namesake, posted a 3.4 percent increase in first-half profit as it opened more stores.

Profit rose to A$25.8 million, or 6.66 cents per share, in the six months ended Dec. 31, from A$24.9 million, or 6.48 cents, a year earlier, the Brisbane, Australia-based company said in a statement. 

The jewellery retailer opened eight new Michael Hill branded stores in the period, taking the total to 305, and eight new Emma & Roe branded stores, taking the total to 24. That helped boost revenue 5.4 percent to A$327.5 million, while same-store sales for the group advanced just 0.8 percent to A$306 million. The company plans to open another 10 Michael Hill stores and six Emma & Roe stores in the second half of the year. Its gross profit margin fell to 63.8 percent from 64.2 percent.

"Overall this was a reasonable result for the group given the difficult and lumpy trading conditions across most markets," the company said in a statement.

Michael Hill will pay a first-half dividend of 2.5 Australian cents on March 31. It paid a dividend of 2.5 New Zealand cents in the year earlier period, before shifting its main listing to Australia.

The company paid NZ$22.6 million to the Inland Revenue Department to settle a long-running tax battle over the transfer of the group’s intellectual property to Australia. That lifted its net debt 39 percent to A$36.6 million, and reduced its net cash flow from operating activities by 51 percent to A$15.9 million. 

Chief financial officer Phil Taylor remains interim chief executive as the company searches for a replacement for Mike Parsell, who resigned in August last year, having worked for the company since 1981 and as chief executive since 2004.

The company's Michael Hill stores in Australia lifted earnings before interest and tax by 3.1 percent to A$33.7 million as revenue advanced 2.9 percent to A$182 million. The profit margin held steady at 18.5 percent, and the company noted it had experienced difficult pre-Christmas trading in November. It added four stores, taking the total to 170.

In New Zealand, the Michael Hill brand added one store, taking the total to 53. Ebit lifted 7.7 percent to NZ$16.5 million even as sales fell 1.5 percent to NZ$66.9 million, reflecting a focus on costs. The profit margin improved to 24.7 percent from 22.6 percent.

Michael Hill's Canadian unit improved ebit 26 percent to C$8.8 million while revenue jumped 17 percent to C$62.7 million, as it traded with an additional 7 stores, taking the total to 72.

The operating loss at its 10 US stores narrowed to US$1.11 million from US$1.58 million a year earlier, although revenue fell 6.3 percent to US$7 million. The company noted that despite "tough trading" in the period, the gross margin improved to a negative 15.8 percent from negative 21.1 percent as expenses were reduced. 

Michael Hill restructured its US management over the period, appointing its Toronto-based Canada general manager Brett Halliday as North American president to oversee both markets. 

"The company still views the US as a viable market with enormous potential but there is work to do on lifting brand awareness through effective marketing programmes, and from improved productivity of the teams," it said. 

The retailer's fledgling Emma & Roe chain, which sells charm bracelets and accessories, widened its loss to A$2.2 million from A$1 million, and the negative margin widened to 25.4 percent from 20.4 percent. Revenue jumped 72 percent to A$8.7 million as the company benefited from an extra 13 stores, although it noted same-store sales were flat. Expenses jumped 74 percent to A$8 million.

"Additional infrastructure and resources were added to the division during the half to oversee the future growth of the brand," the company noted. 

Dual-listed Michael Hill shares were recently up 1.4 percent to $1.42 on the NZX, and have jumped 50 percent this year.

BusinessDesk.co.nz

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