Michael Hill posts 46% gain in first half profit

 Michael Hill International [NZX: MHI], the jewellery chain bearing the name of its founder, posted a 46 percent gain in first-half profit after cutting costs to offset declining sales in its largest market of Australia, and boosting earnings in New Zealand and Canada.

The Brisbane-based company increased profit to A$23.7 million, or 6.15 cents per share, in the six months ended Dec. 31, from A$16.2 million, or 4.17 cents, in the year earlier period, it said in a statement. Revenue rose 4.6 percent to A$283.2 million.

Michael Hill's Australian unit, which accounts for about 60 percent of revenue, posted a 1.9 percent drop in first-half sales to A$168.5 million, even as the company opened two new stores, taking its total in the country to 166. Australia's economic growth has slowed as prices for the country's commodity exports, such as iron ore, dropped, prompting the government to cut back on spending.

"The Australian market has continued to be challenging due to lower consumer confidence, especially in regions where the resource sector is prevalent," the company said today. "Costs have been a focus over the period and this has assisted with delivering an improved result."

Michael Hill's Australian unit increased its operating surplus 8.6 percent to A$31.5 million from the year earlier period.

In New Zealand, the operating surplus rose 13 percent to $14 million as revenue advanced 3.8 percent to $63.2 million. The number of stores remained unchanged at 52.

Meanwhile in Canada, the company opened six new stores during the period and closed one, taking total stores in the country to 59, which it said gave it critical mass, allowing increased marketing spend and brand awareness. Its Canadian unit posted an 80 percent gain in its operating surplus to C$5.2 million as revenue rose 18 percent to C$44.9 million.

The company's US business posted an operating loss of US$565,000 in the first half, from a loss of US$559,000 in the year earlier period. Revenue increased 18 percent to US$5.9 million.

Michael Hill said it will open two stores in the US in the second half of its financial year, taking the total to eight, as it is encouraged by its trial operations in the market.

It will pay a 2.5 cents a share dividend on April 2, unchanged from the year earlier period.

The company said it plans to undertake "significant investment" in the second half of its financial year as it repositions its brand.

It didn't detail the performance of its eight new Emma & Roe branded stores, which aim to generate a higher frequency of purchase with lower value items, because it says it is still testing the concept.

Shares in Michael Hill last traded at $1.15 and have declined 1.7 percent so far this year. The stock is rated a 'buy' according to the consensus of three analysts polled by Reuters.

Michael Hill remains in dispute with New Zealand tax authorities regarding its financing arrangements between New Zealand and Australia through 2009 to 2013 when it claimed tax deductions of $31 million. It said today that talks are continuing within the IRD's dispute process framework, and it considers it "increasingly likely" that the issue will require formal resolution through the courts.

(BusinessDesk)