We said Monday that this week would be important for retailers: yesterday we got the first installment with the news that Harvey Norman, the country’s biggest electrical and consumer products retailer has suffered a sharper than expected fall in profits as sales continue to slump as the crunch bites deeper into Australian consumers.
That has the company to close two of its stores and chairman Gerry harvey says more are planned.
And there was more glum news from Premier Investments, which has just completed taking over Just Group.
Chairman Solomon Lew told shareholders in Melbourne it was the worst time in his 45 years in Australian retailing, and held out little hope of an upturn.
David Jones tried to put some positive spin on things by revealing plans for three new stores and some upgrades, but much of that work won’t start until 2011-12, hopefully after the present crunch is over.
That announcement had the ring of ‘spin’ about it ahead of the release of first quarter sales figures this morning.
David Jones has already warned the market to expect some quarters of negative to flat sales growth and this could be one of them.
For Harvey Norman, it’s clear that the profit downturn will only worsen for the company in this quarter at least, as the sales slump has accelerated since the first quarter.
The shares fell 8% on the news and they closed at $2.24.
That will be tough coming at a time when it should have been expecting to earn most of its profits for the year with the festive selling season approaching.
The retailer has been updating the market for the past six weeks on its weekly sales performance since late September when it plunged in the wake of the credit freeze caused by the collapse of Lehman Brothers and the upsurge in market instability.
It revealed a sharp, 18% drop in pre tax earnings in the first two months of the year, because of a downturn in Ireland where it has been expanding, and the recession in New Zealand.
That was before the slump started in Australia and in the month of September the problems in Ireland and New Zealand were joined by the impact of the freeze here to send earnings down 31% for the first quarter.
That was sharper than brokers had been expecting (a drop of 17%-20% seems to have been forecast).
Clearly September was a miserable month, but it hasn’t got any better with Ireland and New Zealand still in a severe slump and negative sales in Australia have continued into November, compared with the same time of last year.
Yesterday, Harvey Norman told the market that "like for like written” sales for the 28 days ended last Sunday, November 23 "decreased by 3.1% when compared to the same period last year (Source).
"Retail margins continue under pressure.
"Unaudited preliminary accounts for the period 1 July 2008 to 30 September 2008 indicate profit before tax and minority interests for the consolidated entity of $71.0 million compared to $103.6 million for the corresponding prior period, a reduction of 31.5%," the company said in the statement.
The speed of the slump has been dramatic: the company reported a 1.3% rise in like for like "delivered" sales in the three months to September after a 5% rise in like for like sales in July and August.
The company said at the time:
"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."
That means September saw the company’s pre tax profits fall $12 million on September last year. It made $33.3 million against $45.3 million in 2007.
Mr Harvey said yesterday that sales at his stores across Australia are down between 1% and 5% every week, compared with the same time in 2007.
"And I think the same thing will happen going through to Christmas," he told ABC Television.
He said that what happens between January and June next year is "anybody’s guess" with margins on computer and electrical equipment very tight and competitive.
He warned more of the company’s stores might have to close, saying 20% were losing money in the present economic environment.
He said the retailer is slowing hiring and cutting advertising to lower costs in Australia, New Zealand, Singapore, Ireland and Slovenia where the company has 260 outlets.
He’s not alone in the world of retailing: rival Clive Peeters from Melbourne, a much smaller chain, is battling to drive sales; in the US Best Buy, the biggest retailer there of the same sorts of products, is losing sales and its biggest rival, Circuit City collapsed a fortnight ago.
And Harvey Norman’s sales and profit problems were echoed at Premier Investments AGM in Melbourne yesterday by chairman, Solomon Lew.
The company has just finished probably the worst timed acquisition, the $400 million buy of rag trader and fashion group, Just Group, bought as retailing was sliding mid-year.
From what Mr Lew said, the slide is continuing at Just Group.
Mr Lew told the meeting that the retail environment is tough and that the Christmas and January sales periods will be critica
