Harvey Norman has reported a 4.1% fall in net profit to $213.59 million for the half year to 31 December 2019 compared to the previous corresponding period.
With a challenging economic environment influenced by a cautious consumer, changing promotional cycles and unforeseen and unprecedented natural disasters, aggregated sales for Australian franchisees were relatively flat, up 0.1% for the half and up 0.3% on a comparable sales basis. Sales increased 1.4% in Q1 but dropped 0.9% in Q2.
Franchisees and their staff were adversely affected by the ongoing bushfire crisis with temporary store closures and redirection of business investment towards relief support and charitable activities.
Regional stores, which account for circa 65% of the Australian store portfolio, were impacted by the severe smoke haze and fire-ravaged communities, while metropolitan store locations also saw an impact from a severe reduction in air quality and bushfire threats across many states.
Harvey Norman expects a more positive economic outlook going into calendar 2020 with record low interest rates, momentum in the residential property market, ongoing spending on infrastructure and brighter outlook for the resources sector.
However, the first three weeks of January saw bushfire conditions worsen across New South Wales, Victoria and into South Australia with consumers cautious and unwilling to spend on discretionary retail. For the period 1 January to 27 February 2019, franchisee aggregated sales decreased by 3.2% and comparable sales were down 3%.
Harvey Norman offshore revenue reaches $1.15 billion
Offshore retail operations increased by 5.4% to $81.69 million for the period, with New Zealand posting a record half with sales exceeding half a billion Australian dollars ($503 million) for the first time, up 6.3% on the pcp.
Ireland and Northern Ireland achieved a 20.3% profit increase, driven by strong growth in the connected health and wearables, accessories, hardware, connected home and mobile categories and 13 company-operated stores in Ireland continuing to achieve double-digit growth. A new store in Galway is on track to open in April 2020 with another store in Sligo expected to open in August 2020.
All stores in Slovenia and Croatia experienced positive sales growth across all key product categories, resulting in a 26% profit increase.
However, Singapore and Malaysia – usually the star performers in the offshore portfolio – reported a 27% fall in profit due to the impact of the AASB 16 with all Harvey Norman stores leased from external landlords in Southeast Asia. An increase in sales and profitability in Malaysia was offset by soft retail conditions in Singapore due to the protracted trade war between the United States and China, coupled with the long-lasting threat of exposure to the coronavirus for the remainder of FY20.
On a global scale, the outlook from Harvey Norman is that many industries worldwide will be adversely affected by the threat and potential widespread reach of the coronavirus.