Michael Hill 'cautiously optimistic' heading into key Christmas shopping period

Tuesday, 27 October 2020

Michael Hill chairwoman Emma Hill says the jeweller was “severely impacted” by the Covid-19 pandemic.

Michael Hill is “cautiously optimistic” heading into its key Christmas trading period as profitability picks up after being severely impacted by the Covid-19 pandemic.

The jewellery retail chain said earlier this month that its profit margin lifted between 100 and 200 basis points in its first quarter to September 27, compared with the same period a year earlier as online sales jumped 129 per cent.

”We are pleased with these results, and cautiously optimistic in these uncertain times, that these results give us a strong foundation as we enter the all-important Christmas trading period,” chief executive Daniel Bracken told shareholders at Michael Hill’s annual meeting, held online on Tuesday.

Chairwoman Emma Hill told shareholders the company had been “severely impacted” by Covid-19 which forced the temporary closure of all its stores for five to 13 weeks, leading to an estimated A$80 million (NZ$85m) of lost revenue, and an 80 per cent slump in last year’s after-tax profit to A$3.1m.

Reserve Bank governor Adrian Orr speaks to Christchurch businesspeople about handling the effects of the coronavirus.

* Covid-19 hits Michael Hill bottom line as jewellery retailer focuses attention online

* Michael Hill flags more store closures

To stimulate demand, the company has boosted its online service, offering virtual consultations and trying on of jewellery. Digital sales now make up 5.3 per cent of total sales, an increase from 2.8 per cent at the end of its 2019 financial year.

Michael Hill launched a new digital brand called Medley in its first quarter, which it hopes will attract new customers for cheaper high-margin, demi-fine jewellery which is less expensive to produce.

Michael Hill chief executive Daniel Bracken is “cautiously optimistic” heading into the Christmas period.

Bracken said a new store incentive scheme trialled during the year produced higher profit margins and has been rolled out across all its 289 stores, “delivering strong results”.

Meanwhile, the loyalty programme introduced a year ago has 260,000 members and has boosted transaction values and gross margins, he said.

“As we complete what can only be described as an extraordinary year, we have emerged as a stronger, leaner and more professional business,” Bracken said.

Michael Hill shares rose 1.8 per cent in early afternoon trading on Tuesday to 58 cents. They have dropped 16 per cent so far this year.

Grant Williamson of share brokers Hamilton Hindin Greene said Michael Hill was in a difficult trading environment, facing a slowdown in the New Zealand and Australian economies.

All retailers were trying to grow their online businesses, which made sense because it improved margins by not having to run expensive bricks and mortar outlets, he said.

“Retail is tough but it is nice to see them starting to track the right way,” Williamson said. “The share price has certainly improved quite nicely but there is still a fair way to go to get back up to levels that they have seen in the past.”

Michael Hill didn’t pay a final dividend for the 2020 year, and deferred payment of its first-half dividend until 2021, saying it aimed to resume dividend payments as the company’s performance improved and earnings stabilised.

The company received $3.6m in Covid-19 wage subsidies in New Zealand, and also qualified for Australia’s JobKeeper scheme.