Listed jeweller Michael Hill International (ASX:MHJ) is facing a significant decline in earnings for the year ending June, according to an update released late Thursday evening.
The update indicated expected group earnings before interest and tax (EBIT) of $14 million to $16 million for the financial year.
This represents a decline of more than 70% from the $58.9 million reported for 2022-23 and a substantial decrease from the $73.23 million reported in 2021-22.
The news of the significant profit decline suggests that the company is likely to report a trading loss for the year ending June, and a dividend appears very unlikely. The company paid an interim dividend of 1.75 cents per share after paying a full-year dividend of 7.5 cents.
This comes after the company reported an EBIT of $31.3 million for the December half. If the expected full-year EBIT is now between $14 million and $16 million, it implies a significant loss in the second half.
Group sales for the year, including a full year's contribution from the Bevilles chain acquired in April 2023, rose 3.8% from just under $630 million in 2022-23 to just over $641 million in 2023-24. This increase was driven by Bevilles, not the company’s existing stores.
Second-half sales rose 4.9% as the last seven weeks of the period showed positive momentum in all markets and channels, with sales up 6%, according to the company.
This marked a significant turnaround from the March quarter loss of around $10 million reported in a May trading update.
Michael Hill management said in Thursday's release that the company "experienced challenging retail trading conditions during the year as macroeconomic forces impacted discretionary spending. Gross margin settled at about 60.5% for the year, and digital sales returned to double-digit growth compared to the previous year."
Gross margin is down sharply from the 64.2% reported for 2022-23, explaining the collapse in earnings.
The company's debt facility has been increased by $40 million for the four months starting September 15 to fund seasonal working capital for Christmas trade, putting FY24 net debt at approximately $40 million, according to the company.
Australia segment revenue rose 10.5%, New Zealand revenue fell 11.8%, and Canada revenue increased 0.3% compared to the previous year.
