Michael Hill first-half profit jumps 82% as margins rise

Wednesday, 24 February 2021

Michael Hill boosted profits in the first half of its financial year, even though many of its stores were closed due to the pandemic.

Michael Hill’s first-half profit surged 82 per cent after the jewellery retailer closed its least profitable stores and moved more sales online during the Covid-19 pandemic, boosting profit margins.

Net profit jumped to A$39 million (NZ$42m) in the 26 weeks to December 27, from A$21.4m the previous year, Michael Hill said on Wednesday. The company said that on a comparable basis, its pre-tax profit rose 41 per cent to A$44.6m.

Michael Hill lost 3709 days of trading at its stores during the period due to government mandated lockdowns across its New Zealand, Australian and Canadian network, which it estimates cost it A$23m in sales. It was trading with 15 fewer stores than the same period last year after closing its least profitable outlets.

However, its profit margin rose to 62.7 per cent from 61.7 per cent as its digital sales increased by 102 per cent to A$18.5m, representing 5.8 per cent of all sales, up from 2.8 per cent in the year earlier period. While total sales fell 2.9 per cent to A$319.9m, same-store stores rose 6.3 per cent to A$312.1m.

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

Michael Hill chief executive Daniel Bracken says he’s encouraged by the strong start to the second half of the financial year.

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

* Shoppers seeking bling during Covid-19 lift Michael Hill sales, profits

“I’m particularly pleased with our results given the challenging environment for our business – continuous store closures throughout the half, significant decline in foot traffic in all markets, the material impact of 3709 lost trading days, and not a single day of all stores open,” said chief executive Daniel Bracken.

“In spite of all these obstacles, to deliver this significant performance improvement is truly outstanding.”

Bracken said he was encouraged by the strong start to the second half of the company’s financial year, with same-store sales up 11 per cent.

Last year, Michael Hill’s annual profit slumped 80 per cent to A$3.1m after its stores were forced to close during various lockdowns, causing it to miss out on an estimated A$80m in revenue.

In the first half, it benefited from A$14.7m of wage subsidy payments from the New Zealand, Australian and Canadian governments. The company has said it won’t pay the subsidy back because it was severely impacted by the pandemic and had passed the funds on to staff as well as using its own funds to support them.

To counter the disruption from Covid-19, Michael Hill boosted its online service, offering virtual consultations and trying on of jewellery, increased uptake of its loyalty programme, and sold more of its exclusive branded collections.

It reduced its inventory in the first half by about A$30m compared with the year earlier period, bolstered its cash position to A$90.3m from A$400,000 and had no debt.

Michael Hill will pay its shareholders a 1.5 cent Australian dividend, which is unchanged from the previous year as it eyes the risk of ongoing trading disruption.

The board intends to restore dividend payments to historic levels as the pandemic recovery becomes more certain, it said.

Shares in Michael Hill were unchanged at 76 cents in midday trading on the NZX, and have gained 25 per cent over the past year.