Michael Hill profits plunge 60pc

Michael Hill at the jewellery retail company's flagship Queen St store in Auckland. Photo / Brett Phibbs

Jewellers Michael Hill International today announced a 60 per cent fall in after tax annual profit to $26.51 million, on 7.6 per cent higher operating revenue of $443.33m.

Same store sales for the year ended June 30 were up 5.2 per cent and earnings before interest and tax were up 38.4 per cent to $36.24m.

Chairman Michael Hill said achieving sales targets proved difficult during the year with margins under pressure from heavy promotional activity within the industry and retail sector generally.

"However, we were able to achieve sales growth and manage margins through improved buying and sourcing of our products and by continued improvement in our overall supply chain," he said.

"Our diamond category continued to grow in importance for the group with strong growth in sales and margins. Other stand out categories were the Michael Hill watch collection and our collection of bead charms which also achieved strong sales and margins over the year."

The United States operation continued to drag on earnings this year and with little positive news on the horizon for the US retail sector, the company decided in June to close eight of its 17 stores.

"This decision will allow us to focus on a smaller platform of stores while attempting to prove up our model in the US and to reduce the risk and ongoing operating losses from this segment."

The US retail business recorded an operating loss of US$6.25m ($8.8m) and the company has incurred one-off closure costs of US$1.7m in exiting the eight leases.

Hill said Canada continued to be difficult and earnings slipped further in the wake of a depressed retail sector.

"However, in the last quarter we noticed a strong improvement in sales and these have continued in July," he added.

The Canadian retail segment had an operating loss of $C1.15m ($1.56m).

But Hill said the New Zealand and Australian segments "performed admirably".

"Both businesses grew revenues, margins and their bottom lines, even though the retail environment in both countries has remained patchy. This is testament to the strength of the Michael Hill brand in these markets, the maturity of our teams, and the strategies employed within the business over the past few years."

New Zealand revenue increased by 6.0 per cent to $95.81m, with an 8.4 per cent increase in operating surplus of $16.20m.

Australian revenue rose 6.9 per cent to A$236.31m ($300.40m), with a 13.7 per cent increase in operating surplus of A$38.454m.

Overall, trading conditions remained challenging over the past year. However, with a strong focus on growing same store sales, managing margins and controlling costs, the company had achieved a strong improvement in underlying earnings, Hill said.

The directors remained confident in the continued growth and profitability of the group.

A final dividend of 2.5 cents per share made the total dividend 4cps, up 2.5cps for 2009.

But Hill said the company was unlikely to be in a position to impute dividends for the foreseeable future. This would depend on the performance of each segment in the coming years and also on the level of dividend to be paid in future.

- NZPA