Harvey Norman Holdings

By Dan Stratful

Wednesday 23rd May 2012

Australian retailers gave another reminder today of how hard the retailing sector is, with Myer downgrading its annual profit guidance after weak third quarter sales, its shares dropping 6% on the news.

Harvey Norman Holdings (ASX: HVN) is a little different with its unique business model which sees company owned stores, franchises and property ownership, whereas most retailers lease their stores and sell their product, perhaps owning some key stores.

HVN’s property portfolio is significant at $2.1 billion, representing 50% of its asset base which shows the company is partly a property investor, and this provides a reliable income stream when times are tough.

Like other Australian retailers, HVN has experienced a tough start to the year ending 30 June 2012 (FY12) and a lower first half result for the 6 months to 31 December 2011 (1H) was blamed on lower gross profit margins, a strong AUD, price deflation in some categories and intense competitive pressures in the flat panel and computer hardware categories.

At the same time HVN increased tactical support to franchisees to help them manage in the tough environment which saw overall 1H net profit before tax fall 18% to $163 million.

Sales from the franchised “Harvey Norman” complexes, commercial divisions and other sales outlets in Australia, New Zealand, Slovenia, Croatia, Ireland and Northern Ireland (excluding Singapore) totaled $4.39 billion for the 9 months ending 31 March 2012 and this was a decrease of 6.7% on the previous corresponding period. Like for like sales for the 9 months decreased by 6.6%.

Retail in Australia is still tough, and HVN is set to report a much lower full year result in FY12.

Status: AVOID

HVN’s shares today traded at $1.94

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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