Despite the margin squeeze in Australia, Michael Hill experienced immense growth in other markets
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Australian market hurts Michael Hill
By Aaron Weinman
International jeweller Michael Hill faced a margin squeeze in its Australian market through the tail-end of last year.
Michael Hill Jewellers’ sales rose to $287.7 million in the six months ended December 31 compared with $268.5 million in the previous year with North American stores experiencing the fastest growth while its Australian growth was the weakest.
Same store sales in Australia declined 0.5 per cent to $177.4 million in the second half of last year and Chairman, Sir Michael Hill said trading conditions in Australia were challenging and resulted in margin pressure, as reported in The New Zealand Herald.
“Retail has been challenging in our largest market, Australia, which experienced a drop in store sales for the period,” Hill said. “The difficult market in Australia also put pressure on our margins in the second quarter, which will adversely impact on profits for the half year.”
Company CEO Mike Parsell told Jeweller Australian retail was a tough economic environment and lamented that consumers seemed to be more prudent in Australia compared to the retailer’s other markets.
“Consumer wise, people just seem to a little more cautious,” Parsell said. “They are not spending as much on credit and there is a lot of discounting going on amongst competitors.”
The retailer however has experienced “solid” store sales in its New Zealand, Canadian and US markets. In New Zealand, store sales rose 9.9 per cent, while in Canada they rose 2.1 per cent and the US experienced sales growth of 16.4 per cent for 2011.
Parsell added that more significant sales with expensive jewellery was occurring in New Zealand and said the economy was recovering despite the recent Christchurch earthquakes.
“We are noticing a lot of larger sales with important pieces in New Zealand,” Parsell said. “It could be psychological so people are thinking why not – we nearly lost our lives and now we’re going to spend money!”
Parsell also attributed the stronger Kiwi result to having completed a number of improvements to management and business procedures.
“We’ve done a lot of internal work on our business over in New Zealand,” Parsell said. “It [New Zealand] was hit harder than Australia but economically New Zealand’s stronger than last year and sales has been amazing for us.”
The company reported that half-year earnings before interest and tax were expected to be in the range of $33-$35 million, compared with $32.3 million in the 2010 period.
“Despite difficult trading in Australia during the period, the group’s cashflow remained strong for the half-year,” Hill said.
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