Michael Hill first-half profit falls

Friday 9th January 2009

Michael Hill International's first-half profit was "materially below" the year-earlier result as tough trading conditions forced the jewellery chain to cut prices while currency movements drove up costs.

Earnings in the six months ended December 31 will be below last year's $19.5 million, excluding tax benefits from a shift to Australia, the company said in a statement. First-half sales rose 8.7% to $226.9 million.

"A conscious decision was made to target sales at the expense of margins due to the uncertainties of the current economic climate," chairman Michael Hill said. "Sales targets were difficult to achieve in the tough retail conditions we were facing, especially in New Zealand and Canada."

Sales in New Zealand, the company's second-largest market, fell 7.6% to $49.6 million in the six months through December as an economic slump sapped consumer spending. In Australia, its largest market, sales rose 9.5% to $150.6 million though the gain was just 1.2% in Australian dollar terms.

Canadian sales rose 12% to $19.8 million and its reported its first six months of US revenue, $7 million, after buying stores from a failed jewellery chain.

Shares of Michael Hill fell 3.5% to 55 cents and have fallen about 47% in the past 12 months. First-half results also include one-time costs from its acquisition of stores in the US and its decision to relocate to Australia by selling its trading system intellectual property to its subsidiary there.

The company didn't give specific profit figures for the first half and isn't due to release its results until February 20. The global economic downturn has hurt earnings at retailers worldwide. Wal-Mart Stores, the world's No. 1 retailer, yesterday said earnings would miss forecasts. Gap Inc. and Limited Brands, which owns the Victoria's Secret chain, also flagged weaker sales or forecasts.

By Jonathan Underhill

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