 Specialty retailer, Harvey Norman (HVN) posted a record and above consensus 28% lift in annual profit to $449m. The result was driven by demand for furniture thanks to record low interest rates, a strong Australian property market, and favourable property revaluations. and was boosted by the collapse of Dick Smith (reduced competition). 

 Despite the lift in earnings, HVN has cut its next dividend payment to shareholders by a substantial 29% to 12c/share, is fully franked and is payable on 1 December. This is below analyst expectations. Its Board said it is “…undergoing a review of the Company’s capital management options, including a possible share buy-back.” 

 Its 194 stores in Australia (Harvey Norman, Domayne and Joyce Mayne) are owned by independent franchisees and remain the main contributors to earnings. Sales rose by 5.4% over the year to June 2017, which is a slowdown on the 7.6% growth 12 months earlier. Income and margin improvements were helped mainly by a lift in franchise fee revenue, which was underpinned by growth in sales at its Australian stores. 

 Sales revenue at its 87 company operated stores rose by a more modest 1.6% across its seven offshore markets. New Zealand remains the group’s biggest market outside Australia with 39 stores generating $908.9m in retail revenue, followed in order of size and contribution by Singapore & Malaysia, Ireland & Northern Ireland and Slovenia & Croatia. 

 HVN does not typically provide specific earnings guidance, although sales growth slowed in the final quarter. It plans to continue investing in its Flagship strategy, opening six new stores in the 2018 financial year. This will include one Domayne complex in WA and five company-operated stores in overseas markets. HVN said “housing conditions remain strong and are likely to remain favourable in the near term underpinned by strong population growth, which over the next three years is expected to grow by 1.2m people to 25.9m.” 

 HVN shares are coming under pressure following the result. Same-Store-Sales (not including impact of newly opened stores) slowed in most of its markets and a cut to its dividend is not helping. Its shares have fallen by almost 20% Year-to-Date and continue to come under pressure ahead of Amazon’s expected launch in Australia over the next year. 


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