Michael Hill sales lose lustre

Jeweller Michael Hill International issued a profit warning yesterday after a fall in sales in its biggest market, Australia.

The retailer said sales in Australia were down 2.3 per cent in the six months to December. Australian same-store sales - excluding stores opened in the past year - were down 4.3 per cent.

It said net profit in the six months to December was now forecast to be between $10.5 million and $11.5 million.

It had not previously set a forecast for the period, but analysts had expected a first-half net profit of $13 million or more.

Chief executive Mike Parsell said that even though Australian sales had been flat leading up to Christmas, the extent of the slowdown had been a surprise.

"We sensed a tightening of the market in October and November when sales were relatively flat, but the Christmas period was definitely harder than we anticipated," he said.

"Demand was not to the level that we anticipated and there was a lot of competitive activity which put a bit of pressure on margins as well."

With 158 stores catering to mid-range jewellery consumers, Michael Hill generates nearly two-thirds of its revenue from Australia.

While there is anecdotal evidence that holiday retail trading in Australia was softer than expected, Forsyth Barr analyst Guy Hallwright said Michael Hill's warning represented a more significant decline than was probably being seen across the broader retail sector.

Hallwright said Michael Hill's Australian sales were a "a substantial slowdown" compared with early evidence of holiday trading in Australia. "The result is obviously going to be well below what the market expected."

New Zealand sales were up 1.6 per cent and Canadian sales up 9.9 per cent on the earlier period.

The company made a net profit of $12.2 million in the six months to December 2004 but will restate that result based on new international accounting standards.

- additional reporting NZPA