Diamonds are this jeweller's best friend

Michael Hill International is responding to pressure from increased petrol prices and higher interest rates by investing in diamonds.

The retail jewellery chain yesterday announced its profit for the year to June 30 dropped 4.1 per cent to $15.8 million.

Group sales rose 12.2 per cent to $306.4 million and, while same-store sales rose in New Zealand and Canada, they dropped 1.3 per cent in Australia.

Chief executive Mike Parsell said the company would try to take market share in the tough retail conditions by increasing investment in its diamond ranges.

"When things are tough we probably see that our competitors, if anything, may contract their stock levels in that area," said Parsell. "Strategically, we've decided to invest more."

The company would also launch a full range of Michael Hill brand watches this financial year and phase out most existing brands.

"The Michael Hill brand and the Citizen brand will be the only brands that we stock."

It was an expansion of the limited watch range "successfully" tried under the MH label for five years.

The company announced a final dividend of 14c, in addition to the 9c interim dividend, but warned that full imputation of dividends for New Zealand shareholders might not be possible in future years because profits were increasingly generated abroad.

The company opened 16 stores in Australia - including entering the South Australian market - two in New Zealand and five in Canada, including its first in Alberta.

It closed two underperforming stores in New South Wales, Australia.

Forsyth Barr analyst Guy Hallwright said the Australian segment felt pressures from petrol prices and interest rates because of tougher competition across the Tasman.

"The chains of lower, middle-end jewellers - there are several in Australia competing pretty hard for that business."

Parsell said Australia made up the bulk of Michael Hill International's business but revenues from that segment had not met the company's expectations.

"You can see it in the same-store sales results, that we were slightly down," he said.

"We'd normally at least pre-dicting to be up by inflation.

"Australia was probably the tough market for us this year, that's for sure.

"Discretionary spending, we found, was greatly impacted in New South Wales and Victoria."

Shares in Michael Hill closed down 10c yesterday at $7.05.