Hardly normal, but Gerry ‘not that happy’ earnings drop better than feared

Retailer Harvey Norman has recorded a better-than-expected drop in earnings as sales continue to slump following record trading during the COVID-19 pandemic.

Feb 29, 2024, updated Feb 29, 2024
Harvey Norman's Gerry Harvey has pride back part of the $22 million his company received in JobKeeper payments (Image: Harvey Norman Holdings)

Harvey Norman's Gerry Harvey has pride back part of the $22 million his company received in JobKeeper payments (Image: Harvey Norman Holdings)

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.

Despite outperforming consensus expectations, Mr Harvey was “not that happy” with the result.

“They didn’t exceed my expectations,” he told AAP.

“We’ve gone through a difficult situation and so my main focus is how much better can we do next year, so I’m more concerned about that.”

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 accounts 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 to $4.6 billion.Sales experienced single-digit falls across all regions except for the growth market Malaysia, where sales rose 2.6 per cent with the addition of four new stores.

Mr Harvey reaffirmed his commitment to the group’s Malaysian expansion plans, hoping to add another 50 stores to his clutch of 32 already operating in the South East Asian country by the end of 2028.

“You’ve got 32 million people and they’re on an upward trend, trying to catch up with places like Australia,” he said.

“Their standard of living is rising very quickly … we think that’s a great opportunity.”

Consumers in Asia also have a greater preference for in-store shopping over online compared to countries such as Australia, the UK and Europe, Mr Harvey claimed.

“Our number one store in the world is in Singapore,” he 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.

Harvey Norman’s bottom line was impacted by a $5.1 million property revaluation hit to its 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, Australian franchising operations and New Zealand businesses performed better than consensus expectations, E&P Capital retail analyst Phillip Kimber said.

Sales momentum was improving after profit before tax fell 49 per cent in the first quarter.

The company declined to provide guidance figures for the second half, but the result would lead consensus forecasts for the full financial year to receive upward revisions of 10 to 15 per cent, Mr Kimber said.

“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,” he said.

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

Harvey Norman will pay shareholders a fully-franked interim dividend of 10c per share, down from 13c per share at the same time in 2023.

The company’s share price had risen 3.8 per cent to $4.90 shortly before noon.

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