Harvey Norman, one of our most successful retailers, has seen its earnings whacked by the global slowdown.
The group revealed an 18% drop in profits for the first two months of the 2009 financial year, and chairman, Gerry harvey said the year would be one where the company was now expecting to go backwards.
The company is battling recession in two of its main overseas markets, New Zealand and Ireland.
The company surprised the market yesterday with the news of a downturn in earnings thanks to a loss in its Irish business.
The rate of losses seems to be accelerating, given that it operated at a loss in the 2008 year of $12.77 million in the last six months to June.
HVN directors said that the loss from Ireland for July and August had totalled $5.6 million, indicating a yearly loss rate of well over $33 million.
As a result of the Irish losses, the group said earnings for the group for July and August were off 18.3%.
"Unaudited preliminary accounts for the period 1 July 2008 to 31 August 2008 indicate profit before tax and minority interests for the consolidated entity of $47.7 million compared to $58.3 million for the corresponding prior period, a reduction of 18.3% ($10.6 million).
"That reduction includes a loss from the Irish operations of $5.6 million.
"The company has no reason to believe that trading conditions in Ireland will improve in the near future."
The company reported to the ASX yesterday that sales had risen by 6.9% for the first two months to 2009 (till the end of August), with sales up 5% on a comparable store basis.
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That was better than in the fourth quarter when topline sales grew 5.2%, and same store or comparable store sales rose 3.2%. (For the year to June the figures were 8.7% and 4.4%, with a sharp second half slowdown in Australia, New Zealand and Ireland it seems.
The downturn in earnings is not according to guidance and investors took fright and sold off the shares by 11.7% to $3.09. The overall market was off just over 4%, so HVN shares took a battering.
Excluding these one-off transactions and the net property revaluation increments after income tax, the net profit after tax and minority interests of the underlying business operations would have been $295.14 million for the year ended 30 June 2008 compared to $260.35 million for the previous year, an increase of 13.4%.
As swell as slumping Ireland, the company’s New Zealand operations are also battling a recessed economy.
The company said in the 2008 annual report its operations in New Zealand "performed well despite a contracting economy, new “lower cost” entrants into the NZ retail market and the devaluation of the New Zealand dollar.
"The company-owned stores in New Zealand continued to be market leaders in most product categories. In New Zealand dollars, the retail segment result was NZ $61.54 million for the year ended 30 June 2008 compared to NZ $54.72 million for the previous financial year, an increase of 12.5%.
"When the segment result for the New Zealand operations was translated into Australian dollars for the purposes of this report, the segment result for the year ended 30 June 2008 was $52.70 million compared with $47.69 million for the previous year, an increase of 10.5%."
No mention of how New Zealand fared in the first two months of the current financial year.
In the annual report HVN directors said "There has been deterioration in the performance of the company-owned stores in Ireland during the last six months of the financial year.
“The difficult UK retail market and the sharp downturn of the Irish property sector, increasing inflation and a lack of confidence in the Irish economy have resulted in a very cautious approach to spending amongst consumers.
"In an effort to maintain and grow market share under these difficult conditions, product margins have come under pressure. These factors have resulted in a loss recognised by the Irish operations of $9.52 million for the year ended 30 June 2008, with the loss for the last six months of the year being $12.77 million.
"There are currently thirteen (13) stores in Ireland. Trading conditions in Ireland have continued to deteriorate since 1 July 2008. The consolidated entity has no reason to believe that trading conditions in Ireland will improve in the near future."
Mr harvey said the company would have to cut its marketing budgets by around 20%. That will be substantial as Harvey Norman is the country’s 4th biggest advertiser.
