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Harvey Norman Investors Concerned After $442M Buyback Announcement

We all know that Gerry Harvey is worth billions, now questions are being asked as to what will happen to shareholder dividends, after his franchisee stores reported a 13.9% slump in sales resulting in the retailer announcing a massive buyback of shares.

The big retailer whose FY2023 profits before tax slumped 27.8% down to $680.2 million is facing a questionable future with the business, that earlier this year placed their largest franchisee Harvey Norman Commercial NSW into administration, facing a further drop in revenue as marketplace conditions come under pressure from rate rises.

ChannelNews understands that many of their franchisees are struggling with Harvey Norman set to have to fund several of their franchisee stores.

As one analyst claimed recently “A near-50% drop in profits for the September quarter compared to the prior quarter doesn’t exactly inspire confidence for income investors” with questions being raised as to what impact the buyback will have on dividends.

The company intends to buy back up to 10 per cent of its shares, or $442 million worth, following their recent poor sales update and amid a significant slump in their share price in the last month.

Gerry Harvey at the 2020 Magic Millions barrier draw at Surfers Paradise Foreshore on the Gold Coast, Tuesday, January 7, 2020. (AAP Image/Glenn Hunt) NO ARCHIVING

Year to date Harvey Norman shares is down over 10% and this is of concern to investors.

Analyst The Motley Fool told investors ‘At the end of the day, dividends have to be funded out of a company’s profits. And if Harvey Norman’s quarterly profit just collapsed by almost 50%, it doesn’t exactly inspire confidence that this company will be able to keep paying out dividends at the levels it has been over the past 12 months.

Investors are already facing a 33% haircut in dividends down to 25 cents per share.

In the previous financial year, investors enjoyed a total of $37.5 cents per share in dividends.

Questions are also being asked about the current management team at Harvey Norman with some directors actually talking about retirement as the going gets tough for retailers and key management reach retirement ages.

UBS claims that the more Harvey Norman spends on buying back its own shares, the less it will have in cash to pay out as dividends.

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