Shares in jewellery retailer Michael Hill tarnished following profit downgrade

Shares in jewellery retailer Michael Hill are in freefall following a profit downgrade, saying the improvement in consumer sentiment it had hoped for did not happen.

Michael Hill issued a statement late on Friday after the market closed which said group sales, including from its Bevilles acquisition, in the 45 weeks to May 12 were up 4.7 per cent on last year. Sales for the core Michael Hill brand were still negative to last year.

“Positive sales momentum had been expected through the second half in line with anticipated improvements in consumer sentiment and economic conditions,” the retailer said.

“Unfortunately this has not materialised, with second-half sales performance broadly in line with the first half, and margin still under pressure.”

Investors punished the retailer on Monday by sending shares down 21 per cent to 49¢ in early trade. It’s the lowest shares have traded since early 2020 when it hit 23¢.

Michael Hill said gross margin remained suppressed due to sustained higher input costs and record gold pricing. As a result, its previously reported first-half earnings had been eroded by a $10 million loss in the third quarter.

As the business navigates the prolonged impact of cost-of-living pressures on consumer sentiment, Michael Hill said management was activating initiatives to stimulate sales and restore margin.

“There is also a heightened focus on managing operational costs and capital expenditure,” it said.

“Actions have been taken to reduce costs across the business including inventory, corporate overheads, under-performing stores and further optimisation of store rostering.”

Earlier this year, the retailer also flagged “difficult” trading conditions which resulted in the closure of five under-performing Michael Hill stores in Australia and one in Canada.

Mr Bracken at the time also said an unspecified number of senior management role had been axed as part of its direct actions to reduce operating costs.

In the trading update, the retailer said its Australian segment showed positive sales for both the first half and year-to-date, driven by the Bevilles brand.

Its New Zealand segment remained the “most challenged” with deeper macroeconomic pressures significantly impacting consumer behaviour and discretionary spending.

The NZ economy, battered by steep interest rate hikes amid elevated inflation, has dropped into a technical recession twice over the past 18 months.

“The continued negative sales results are also driven by a decline in consumer credit approval rates across the country and an increase in serious retail crime events impacting a number of our stores,” Michael Hill said.

Michael Hill chief executive Daniel Bracken said it was anticipating sales and margin recovery as interest rates moderate.

“There is no doubt that consumer discretionary spending, and the fine jewellery category in particular, remain under pressure due to macroeconomic forces,” he said.

“Higher interest rates are leading to a sustained and prolonged decline in consumer spending.”

Michael Hill just last month unveiled its first-ever brand ambassador in supermodel Miranda Kerr as part of its global brand overhaul.