Jeweller cuts margins to bolster sales

Offering discounts has helped Michael Hill International avoid a serious sales slump. Photo / Brett Phibbs

The tougher economic times have forced Michael Hill International to discount more heavily than normal, squeezing margins but helping the jeweller to avoid the kind of dramatic drop in sales facing some retailers.

Chairman Michael Hill yesterday described the March quarter as solid, with sales up in Australia and down in New Zealand and Canada.

"However these sales results were achieved on lower margins as a result of increased 'sale' activity in all markets in an attempt to offset the difficult global retail environment," Hill said.

"Management continues to focus on cost reductions in an effort to offset the lower margins."

Sales for the nine months ending March 31 were up 9.9 per cent at $314.9 million, with same store sales up 1.9 per cent at $273.9 million, when reported in New Zealand dollars.

The United States continued to be tough and the company was focused on improving its business and establishing its brand in that market, Hill said. US sales for the nine months were US$6.2 million.

Last year Michael Hill International spent $7 million to acquire 17 jewellery stores in the US.

Forsyth Barr retail analyst Guy Hallwright said the update showed a continuation of a general trend of sales slipping - although at a relatively benign rate given the difficult conditions facing all retailers.

The exception was Australia, which was encouraging, he said.

Weaker sales had been expected as the chain tried to move upmarket but it was disappointing that more progress had not been made to boost margins.

Financial results for the six months ending December 31 posted earlier this year showed net profit of $65.6 million, up from $19.5 million.

However, the result included a one-off deferred tax credit of $52.9 million from selling the intellectual property of the Michael Hill Jeweller System from Michael & Co Ltd to its Australian subsidiary Michael Hill Franchise for $294 million.

Half-year profit before tax was $17.9 million, down 37 per cent on the year before.

The company said then the result had been affected by one-off expenses of $1 million associated with buying the US stores, $1.2 million in restructuring costs, $2.4 million in trading losses in the US and a margin loss of $4.3 million on Christmas inventory caused by a fall in the US dollar.

If the abnormal items were taken out the adjusted profit before tax would be $26.7 million, the company said.

The dollar's moves upward would improve things a little, Hallwright said.

Shares in Michael Hill closed up 3c yesterday at 52c, compared to a year-high of 95c.