Michael Hill invests in US bridal products, lifts sales

Sir Michael Hill at the opening of the revamped Whangarei store.

Michael Hill International, the jewellery chain that bears the name of its founder, posted first-half earnings that met its guidance of last month after lifting sales while investing in a trial of bridal products at its North American outlets.

Earnings before interest and tax was A$29.7 million in the six months ended Dec. 31, from A$28.6 million a year earlier, the Brisbane-based company said in a statement. Sales rose 9.8 per cent to A$270.8 million.

Net profit dropped about 26 per cent to $16.2 million, mainly reflecting a more-than doubling in the company's tax expense to $12.2 million. The company has made a provision related to its negotiations with the Australian Tax Office over the restructuring of intellectual property between its New Zealand and Australian units in 2008.

Revenue in Australia, the company's biggest market with 166 stores, rose 5.5 per cent to A$172 million and the operating surplus increased 3.6 per cent to A$29 million. Same store sales rose 1.4 per cent.

Michael Hill recorded a net operating cash outflow of A$2.3 million in the first half, from an inflow of A$22 million a year earlier, mainly reflecting "significant additional inventory" built up as part of the trial of a new bridal range in US stores and some Canadian stores, it said.

The bridal range was key to the company's North American expansion and directors were confident it would produce returns in years to come, although it was too soon to comment on the results, it said.

Sales at its US stores fell 8.4 per cent to US$5 million in the first half after it closed one of its nine outlets. The operating loss was US$559,000, from a loss of US$1.27 million a year earlier.

In Canada, sales jumped 29 per cent to C$37.9 million, and the operating surplus rose to C$2.85 million from C$1.56 million. Same store sales growth increased to 7.9 per cent from 3.8 per cent and the company said it has now reached a "critical mass" of stores.

New Zealand sales fell 3.5 per cent to NZ$60.9 million and the operating surplus slipped 4.5 per cent to NZ$12.4 million. Same store sales fell 4.1 per cent.

Sales from the retailer's professional care plan business were A$17.6 million, up from A$14.2 million a year earlier. Deferred revenue carried forward on the balance sheet rose to A$49 million from A$35 million.

The company will pay a first-half dividend of 2.5 cents a share, unchanged from a year earlier, on April 1, with a record date of March 24. Dividends aren't imputed and likely won't be for some years because of the company's internal restructuring in 2008, it said.

The shares last traded at $1.40 on the NZX and have gained 15 per cent in the past year. The stock is rated a 'buy' based on two analysts polled by Reuters.