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What’s Next For Harvey Norman, After Profits & Revenues Tumble

What’s next for Harvey Norman after they announced a 35% slump in profits and a 9.9% fall in revenue yesterday?

CEO Katie Page is claiming that the big retailer has built up inventories that should see them through into the new year, however analysts are not convinced that the road ahead is good for investors in the big retailer.

Analysts at Share Cafe claims the big slide in sales and profits reported by Harvey Norman yesterday is a ‘tell’ for investors thinking about how the retail sector will fare in the next quarter, they said “In short Harvey Norman’s update in the six months to December won’t be pretty”.

Harvey Norman’s trading update was the last for the June 30 reporting season and therefore the most up to date figures on the damage the lockdowns in NSW, Victoria and the ACT have done to sales and earnings up to late November – five weeks short of the full six months they claimed.

While the major retailers like Coles, Woollies, Myer, Kathmandu and JB Hi Fi have already provided first quarter trading updates to annual meetings in October and earlier this month, Harvey Norman left it till this week to report.

Chief executive Katie Page claimed at their Annual General Meeting “We are in eight countries; people forget we are not just in Australia. We are really comfortable and confident with the inventory levels that the franchisees and the company owned stores are holding going into that peak period,”

“Everyone is talking about supply chain, not just in retail but every industry, and we have managed this, we were talking about supply chain challenges at the end of January 2020 when in Wuhan the Chinese New Year was effectively cancelled because the outbreak happened.

“So, we have had, and the world has had these issues for 20 or 22 months, and businesses have had to be really savvy and smart on how they have managed this, and we are really comfortable with our eight countries, where they are sitting, company owned and franchisees, with inventory.”

Currently Harvey Norman Holdings had debt of $560.0m, up from $297.8m 12 months ago. On the flip side, it has $305.7m in cash leading to net debt of about AU$254.3m which is being used to buy inventory.

The latest balance sheet also shows that Harvey Norman Holdings had liabilities of $1.15b due within a year, and liabilities of AU$1.63b falling due after that.

Offsetting this, it had $305.7m in cash and AU$889.2m in receivables that were due within 12 months.

So, its liabilities total $1.59b is more than the combination of its cash and short-term receivables which analysts claim they are in a good position to manage as the business is capitalised at $6.29b.

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