Shares in Harvey Norman were given a whacking by investors yesterday who didn’t like the surprise news of a cut in dividend, the weak explanation for the decision, and the backdrop of record earnings.
The shares lost more than 7.4% to close at $4.08.
Harvey Norman shares fell 33 cents after it announced it had cut its final dividend for the year by 5 cents a share to 12 cents.
That saw a fully franked payout for the year of 26 cents a share, down from 30 cents for 2015-16.
Chairman Gerry Harvey (who will see a drop in income from the decision on his shareholding) said in a statement the board was undertaking a review of the company’s capital management options, including a possible share buy-back, and continued to consider investment options for the core business.
But a company cutting the final dividend for the year indicates some concern about the outlook – and did the slowing rate of sales growth signal just that?
Yesterday’s drop took the fall in Harvey Norman shares for the year to date to just over 20% – against a small 1% rise in the ASX 200.
Investors have concerns about what the arrival of Amazon this month will do to Harvey Norman, as well as continuing fears about the outcome of an Australian Securities and Investments Commission review of Harvey Norman 2015-16 books. Given that ongoing probe, it is certain Harvey Norman’s 2016-17 annual report will be looked at closely by the regulator.
But there was a noticeable slowing in sales momentum in the last months of the year to June and the first 8 weeks of 2017-18 (unlike rival JB Hi Fi which saw a solid start to the current financial year.
While aggregated sales rose 5.1% to $7.27 billion (including those by franchisees)over the year, same-store sales growth slowed in Australia and in most other territories in the fourth quarter.
In Australia, same-store franchisee sales growth slowed to 2.3% in the fourth quarter from 6.9% in the third quarter – possibly due to the timing of Easter, which was in April this year instead of March.
Franchisee sales for the first eight weeks of 2018 rose 4% (3.2% on a same-store basis) after growing 6.4% (6.6%) in the same period a year ago.
The sell-off came as Harvey Norman announcing its net profit jumped 29% to $449 million for the year, beating market forecasts
The bottom line result, which topped the last record result of $413 million in 2007, was boosted by property revaluations of $108.5 million, more than double the $48 million of property revaluations booked in 2016. (That’s called ‘revaluation uplift’).
Underlying net profit excluding properly revaluations and asset impairments rose 15.7% to $390.8 million, beating forecasts around $385 million.
“To say that we’re pleased by the record-breaking results we are presenting today would indeed be an understatement," said chairman Gerry Harvey yesterday.
"The results for the year ended 30 June 2017 are truly unprecedented in our 30-year history."
He said the result was underpinned by strong growth in Harvey Norman’s franchised operations in Australia and company-owned stores overseas.
Sales from company-owned stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia rose 2.1% and earnings jumped 24% to $90 million.
"This is a fantastic effort from our offshore operations," company chairman Gerry Harvey said in a statement.
“The success of our flagship strategy is clearly evident in these results,” he said.
