After brokers at Citi yesterday said that Harvey Norman “has underperformed The Good Guys”, a UBS analyst, Shaun Cousins, has now downgraded his rating on Harvey Norman to neutral, saying that the company is “trailing its competitors”.
“Given the HVN product mix skew to categories that are late cycle beneficiaries of a consumer upturn, we are more cautious,” said Cousins, adding that retailing in New Zealand remained challenged as well.
Ahead of its AGM yesterday, Harvey Norman released its first quarter earnings which showed that between 1 July 2024 to 31 October 2024, Australian franchisees’ sales increased 3.2% but shrunk 8.6% in New Zealand where JB Hi-Fi is gaining share.
In comparison, between July 1-September 30, total sales grew 4.9 per cent at JB Hi-Fi Australia, and 19.6 per cent at JB Hi-Fi New Zealand. Even The Good Guys delivered growth of 5.3 per cent for the period despite discount pressure on the business.
But Gerry Harvey has told investors that Harvey Norman is not losing ground to JB Hi-Fi and The Good Guys, reported the Australian Financial Review.
Gerry said the company had not lost any market share in directly comparable categories, citing Harvey Norman’s own internal analysis.
“When we do our own direct comparisons, we’re not unhappy that’s for sure, we’re not of the opinion that we’re losing market share to them,” he said. “We pull refrigerators out, and we compare ourselves to JB Hi-Fi, we pull televisions out, we pull washing machines out, we’re doing fine.”
However, beyond Citi and UBS, other analysts are also pointing out to flaws in Harvey’s strategies which are leading it to underperform the broader market since the Covid-19 pandemic. Goldman Sachs told clients earlier this month that this was “due to a combination of overstocking the wrong inventory and discounting to clear stock as well as more competitive intensity from market incumbents”.
Beyond the JB Hi-Fi Group, Goldman Sachs’ analyst Lisa Deng who recommended clients sell their Harvey Norman holdings said that the company was also losing share in technology sales to Wesfarmers’ Officeworks chain. Older shoppers favoured Harvey Norman, she said, but they bought fewer new technology items.
Earlier this year, Harvey Norman reported a 34.7% slide in FY 24 full-year net profits to $352.45 million.
Its share price has climbed 15% year to date, but JB Hi-Fi’s has risen a staggering 67% over the same period.
Cousins from UBS referenced Harvey’s current share performance when downgrading his rating of the company. “Given share price outperformance CY24 to date a subdued outlook…and the absence of valuation upside, we downgrade our rating from buy to neutral.”
