Michael Hill forecasts higher profit, pays dividend, helped by wage subsidies

Friday, 15 January 2021

Michael Hill says its first-half pre-tax profit could be almost double last year’s level.

Jeweller Michael Hill said its first-half profit lifted significantly, prompting it to bring forward the payment of a A$5.8 million (NZ$6.1 million) dividend it suspended last year due to Covid-19.

Michael Hill said it will post a pre-tax profit of between A$56m and A$60m for the first half of its financial year to December 27, 2020. At the higher end of the range, that’s almost double the A$31.6m it reported in the same period a year earlier.

The profit was helped by A$15m of wage subsidies from the New Zealand, Australian and Canadian governments. New Zealand paid the company $3.6m, according to government data.

Excluding the subsidies, the company expected to post pre-tax profit of A$41m to A$45m, up as much as 42 per cent from the year earlier.

Michael Hill has developed virtual consultations and trying on of jewellery.

* Michael Hill expects to increase first-half profit on higher sales and margins

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

Michael Hill said same-store sales rose 6.3 per cent to A$312.1m in the first half, with profit margins up between 150 and 250 basis points, helped by a 102 per cent jump in online sales.

Given the company’s first-half trading performance, and “significant” cash position at the end of the half, Michael Hill brought forward payment of last year’s first-half dividend that it suspended due to the uncertain economic environment during Covid-19.

The dividend of 1.5 Australian cents per share, originally scheduled for payment in March 2020, had been deferred until September this year. It will now be paid on January 29 to shareholders who held the stock on March 31, 2020.

The company didn’t pay a final dividend for the 2020 year.

The jewellery company was founded by Michael Hill in 1979, and he remains on the board of directors, with daughter Emma presiding as chair.

Businesses which incorrectly accessed the wage subsidy could face criminal prosecutions.

The Hill family is the largest shareholder in the company, with interests in about 187 million shares, according to the latest annual report. Those shares will accrue about A$2.8m from this month’s dividend payment.

Retailers who faced uncertain times at the start of the pandemic have since largely bounced back, prompting some such as Briscoe Group and The Warehouse Group to repay subsidies.

Michael Hill won’t pay the subsidy back, a spokesman said.

The jewellery chain has said it was impacted severely by Covid-19, with the temporary closure of all its stores, leading to an estimated A$80m of lost revenue, and an 80 per cent slump in last year’s after-tax profit to A$3.1m.

“They really needed to have those wage subsidies,” the spokesman said.

“They have done the right thing by passing it through completely to the team, and then when they weren’t eligible, they self-funded a wage subsidy to support the team, so I think they feel they have done enough.”

The fact the company was performing better now was due to “a lot of hard work” and was a credit to the team, he said.

To counter the impact of Covid-19 on its physical stores, Michael Hill has boosted its online service, offering virtual consultations and trying on of jewellery, as well as contactless pick-up, and shipping from stores.

“Following a strong first five months, it was particularly pleasing to see all markets deliver positive same-store sales growth for the all-important Christmas trading period,” said chief executive Daniel Bracken.

A strong trading performance, and a focus on cost had delivered material profit growth “in spite of challenging trading conditions worldwide,” he said.

Australian same-store sales jumped 12 per cent to A$174.2m, while New Zealand sales lifted 2.8 per cent to $68.4m and Canadian sales advanced 3.6 per cent to C$70.3m (NZ$75.4m).

None of the 49 stores in New Zealand were forced to close during the last three months of the first half in the lead up to Christmas, although some were closed for a time in Australia and Canada.

Shares in Michael Hill jumped 6.9 per cent to 73 cents in midday trading on the NZX.