It’s all down, down, down, at Harvey Norman as the company delivers its half-year financials, but despite a fall in profits, EBITDA and revenues, shares in the big global Australian retailer have risen this morning.
After posting record profits during the early days of the pandemic, buoyed by increased shopping and a hefty dose of JobKeeper money, reality has set in for the monster retailer.
Reported profit after tax and non-controlling interests has fallen 6.7 per cent, to $430.9 million during the final half of 2021. Sales at franchised stores in Australia also fell, by 6.2 per cent to $4.91 billion.
Operating profits at the Australian franchising operation fell 23.7 per cent to $292.9 million, due to widespread store closures, as mandated by the government. Rent reduction from franchisees also bit into the company’s profits.
Gerry Harvey called this “a solid result, given the unprecedented COVID-19 issues encountered by the consolidated entity during this half.”
Harvey rallied against “nearly 4 months of government mandated closures, affecting over 15 million people or 58 per cent of the Australian population.”
This resulted in retail closures of 60 per cent of Australian Harvey Norman, Domayne and Joyce Mayne franchised complexes for the majority of the September quarter.
“These closures resulted in a reduction in franchisee sales by –16.5% in 1Q22 compared to 1Q21.”
Profits before tax dropped 4.9 per cent, to $612.2 million – but Harvey managed to put a positive spin on this (and many other results from this quarter) by comparing it to the final half of 2019, from which profits have risen 103.3 per cent.
This voodoo seemed to have worked, with investors buying up the stock this morning, sending it to $5.20, up 4.2 per cent.
“The strengthening momentum in the home renovation market and heightened consumer demand since the start of the pandemic, continues to drive sales across key home, lifestyle and tech product categories with the ‘home’ continuing to be the focal point for consumer spending,” Harvey said.
During FY21, Harvey Norman enjoyed a 75 per cent rise in net profit, to $841.4 million. This will no doubt be seen as an outlier period for the company, as it forges ahead.
“We operate an integrated retail, franchise, property and digital business across eight countries – and our points of difference have proven to be our strengths validating the continued investment in our three main pillars,” Harvey said, listen off the business’ “108 company-operated retail stores overseas; 194 franchised complexes in Australia across all key product categories within the Home, Lifestyle and Tech markets; a resilient $3.54 billion freehold property portfolio and a $1.12 billion leasehold portfolio that anchors a strong balance sheet.
“The solid cash flows generated from operating activities this half will enable us to further enhance and promote our brand locally and overseas to grow our businesses, refurbish our existing stores and invest in new property acquisitions and paydown external debt.
“We have improved our net debt to equity ratio even further reducing to a low 1.46 per cent as at 31 December 2021.”
Harvey Norman currently has 540 Australian franchisees and 108 overseas company-ran stores.
Net assets shot past the $4 billion mark, with the company holding $496.5 million in franking credits.
Inventories rose almost by $72 million to nearly $560 million, while franchisee receivables was up $97 million.
Harvey Norman held its interim dividend at 20c a share, payable on May 2. It did not announce a share buyback.
