Sales, dividend down as retail slump hits Harvey Norman

Retailer Harvey Norman has beat analyst earnings expectations, despite a significant drop in sales following record trading during the COVID-19 pandemic.

The Gerry Harvey-chaired company on Thursday reported a 45.7 per cent dip in pre-tax profit to $283.6 million for the six months to December 31.

After tax, the bottom line profit was $202.8 million, down from $369.8 million.

Profit derived from Australian franchisee payments, which represents about half of the group’s profit, slumped almost 40 per cent amid a 14 per cent drop in revenue and a slight increase in expenses.

The group’s overseas retail segment, which unlike Australian stores is operated by the company and account for just over a quarter of total profit, suffered a 23.5 per cent dip in profit.

Total system sales revenue, including franchisee sales, fell $334 million compared to the last six months of 2022.

Sales experienced single-digit falls across all regions, except for growth market Malaysia, where sales rose 2.6 per cent.

Overseas retail sales were hampered by persistent macroeconomic headwinds in New Zealand and inflationary pressures and geopolitical tensions across Europe and Asia that have decreased foot traffic and spending in the homemaker category, the company said.

Despite the difficult economic environment, Mr Harvey said the group’s $4.14 billion property portfolio and $7.86 billion in total assets put it in a strong position.

“Amid the challenging retail conditions in (the first half of financial year 2024), we have continued to deliver sustainable growth in net assets, rising to $4.51 billion as at 31 December 2023, a substantial increase of $1.23 billion since the start of the pandemic,” he said in an announcement released to the ASX.

Harvey Norman’s bottom line was substantially impacted by a $5.1 million property revaluation hit to the group’s extensive property portfolio.

Excluding the impact of lease payments and property revaluations, profit before tax was down 26.4 per cent on the prior corresponding period, when the company’s property values enjoyed a $106.9 million upward revision.

Despite the drop in profit, the result was better than consensus expectations, including Australian franchising operations and New Zealand businesses, E&P Capital retail analyst Phillip Kimber said.

Sales momentum was improving after profit before tax fell 49 per cent in the first quarter, with consensus forecasts for the full financial year set to receive upward revisions in the order of 10 to 15 per cent, he suggested.

“Harvey Norman’s share price has risen 13 per cent since the start of calendar year 2024, following better than expected recent sales growth from JB Hi-Fi and investor sentiment towards discretionary retailers improving,” Mr Kimber said.

“Notwithstanding, we expect the share price to continue to improve following the (first half) result.”

Mr Harvey reaffirmed his commitment to the group’s Malaysian expansion plans, hoping to have 80 stores up and running in the South East Asian country by the end of 2028.

Harvey Norman will pay shareholders a fully-franked interim dividend of 10c per share, down from 13c per share the same time last year.

The company’s share price rose 4.9 per cent to $4.95 in early trading.