Australia a bright spot for Michael Hill

Michael Hill's 143 Australian stores produced an 8.9 per cent increase in revenue amid the gloom. Photo / Brett Phibbs

Michael Hill International says it is too early to tell whether 2010 will see an improvement in the tough retailing conditions of the past year.

The jeweller reported a 46.3 per cent drop in pre-tax profits for the 12 months to June.

Same-store sales fell in the chain's New Zealand and Canadian operations, and even the recession-resilient Australian market saw just a 0.3 per cent increase.

The 143 Australian stores were the one bright spot, producing an 8.9 per cent increase in revenue. Revenue from the 53 New Zealand stores fell 6.8 per cent.

In North America, including its newly acquired United States business, the company made losses.

Net profit before tax fell to $20.1 million, down from $37.5 million in 2008.

However thanks to a one-off deferred tax credit of $53 million arising from the transfer of the group's intellectual property to Australia, tax-paid profit rose 175 per cent to $69.5 million.

Chief executive Mike Parsell said it was still crystal-ball gazing to pick the recovery yet, but the key Christmas period would be telling.

He anticipated conditions in Australia and New Zealand would remain much the same, but said the company remained "quietly confident" about its 26 Canadian stores, which were close to breaking even.

In the US, where it bought the 17 Whitehall Jewelers in Illinois and Missouri out of Chapter 11 bankruptcy in September, it made a $5.3 million operating loss.

Parsell said the company got a good deal on Whitehall and had acquired some prime sites. It was trying out its new store concept and experimenting with stock. "Our view is we'll just take our time."

He said the group's earnings had been affected by one-off costs such as the purchase in the US and $1.2 million in restructuring costs.

The company had strengthened its balance sheet by focusing on inventory management in the second half, and as a result cash flow had significantly improved.

However Forsyth Barr analyst Guy Hallwright said the company had "basically squeezed every drop of cash out of the business" and would not be able to achieve that again next year.

He saw nothing in the accounts to indicate an upturn, and noted that Australian same-store sales growth had deteriorated in the fourth quarter.

Michael Hill International shares closed 3c down yesterday at 69c.