Michael Hill shares lose more of their lustre

By NZPA

Wednesday 5th March 2003

Shares in Michael Hill International fell 16 cents to an 18-month low of $4.45 today, but analysts said it was more due to uncertainty in the retail sales environment rather than a fundamental change in the company's outlook.

The jewellery retailer's steady climb for five years came to an abrupt halt in January, shortly before it issued a profit warning. It has fallen more than 30 percent from a $6.45 high on January 17 when it announced an upbeat sales report.

The warning less than a month later that the annual profit would be down 10 percent seemed at variance with the January sales report and sent the share price scudding 11.5 percent lower on that day.

The shares, which have climbed from $3.17 in March 2000 and $1.90 five years ago, have continued to fall faster than the descending overall market.

The company blamed the strong New Zealand dollar against the Australian dollar for some of its profit problems. Costs there were also higher than expected while start-up costs in Canada were also causing it pain.

Analyst Jeremy Simpson of Forsyth Barr Frater Williams said all retail stocks had come off as the heat had come out of the retail sales.

"Michael Hill has had a very strong performance for the last 12 to 18 months and I guess investors were expecting it to continue for a bit longer," Mr Simpson said.

"I think they have been overly punished but at the same time I think it is going to be hard in the near term for retail stocks to rally while there is concern about the impact of a slowing economy and whatnot on consumer spending," he said.

While there was concern about how the company would do in Canada, its outlay there was relatively small and it had the success model of its expansion in Australia to follow.

The translation of profits from Australia back to New Zealand would be affected by the strong New Zealand currency, but that effect was expected to be short-term.

Mr Simpson noted very few stocks in the New Zealand market had been as successful overseas as Michael Hill had been, where it has been able to replicate the success of its New Zealand operations in Australia.

"We are confident about the medium to long-term growth profile for Michael Hill," Mr Simpson said.

"There is some near-term uncertainty about retail sales in New Zealand but we are confident about long-term growth for them. The company is still well placed to expand outside New Zealand."

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