Harvey Norman shares climb after please explain letter to ASX

Shares in retailer Harvey Norman have climbed back up today after the company said it had no information that had not been announced to the market following a please explain notice from the ASX over the biggest decline in its share price in five years.

Shares in the Australian-based homewares and electronics retailer, which has 39 stores nationwide in New Zealand, fell 8% from $A4.90 last Friday to a low of $A4.33 yesterday. The fall followed two of its directors selling off more than $A2.5 million worth of shares on consecutive days.

Harvey Norman told the ASX it had complied with the listing rules.

The ASX’s please explain letter included asking for comment on an article published in the AFR over the weekend, “Behind Harvey’s zombie trusts” which questioned the company’s financial reporting of losses associated with its failed franchisee operations. In particular, the ASX wanted comment on the article’s claim that “The Australian Securities and Investments Commission is reported to be reviewing how Harvey Norman reports its exposure to franchisee losses and $A1.15 billion in sometimes troubled franchisee loans.”

Harvey Norman’s response said the AFR article “makes false statements and assumptions, and then proceeds to make assertions and draw conclusions, which are also false, based upon those false statements and assumptions.”

Harvey Norman managing director Katie Page sold $A1.06 million worth of shares last week, although she has retained a significant stake. The next day on March 15, long-time executive director David Ackery sold $A1.5 million worth of shares, in part to repay an ANZ loan he had secured against his shareholding.

After the share price started falling, chairman Gerry Harvey started buying – acquiring a total of two million shares for $A8.7 million to boost his controlling stake. It helped shore up up the share price which is now trading at $A4.51.

The share trading by the directors coincided with a Credit Suisse report that Amazon’s prospective entry into Australia put big retailers at risk – including Harvey Norman, Myer and JB-Hifi.  The report said “almost anything that can be put in a small box is likely to be vulnerable to Amazon.”

Amazon hasn’t officially announced a  move into Australia or New Zealand despite speculation though Credit Suisse says within five years of going into the Australian market it is likely to reach a better than 5% market share in many categories

Harvey Norman reported a better than expected result for the 2016 financial year with a 30% increase in profit to $A348.61 million while retail franchisees had 6% sales growth to $A5.33 billion.

In New Zealand, sales revenue from company-operated stores rose 10% to $883.8 million in 2016.  The company has a small stake in listed retailer Briscoe, which it valued at $5.25 million in the 2016 accounts.