Michael Hill FY profit up 5.8%, Australia growth slows

BUSINESSDESK: Michael Hill International, the listed jewellery chain, lifted annual profit by 5.8% as recovering sales in New Zealand, Canada and the US made up for shrinking sales in Australia, which will be the current year's focus.

Profit rose to $36.5 million in the year ended June 30, from $34.5 million a year earlier, the Brisbane-based company says. Sales rose 4.5% to $511 million. That compares to analysts' expectations of $36.7 million for reported profit and $515.3 million for sales.

"The 2011-12 year witnessed good recovery in revenue in New Zealand, Canada and the US while sales were tougher to make in our largest, Australia," chairman Sir Michael Hill says.

"A big focus for the coming year will be to drive same-store sales revenue in Australia – additional resources have been placed in this market with a view to turning around the results."

In Australia, the retailer managed to lift sales 1.8% to $333 million even in the face of a difficult retail sector, while same-store sales, which measures outlets open at least 12 months, fell 2.2% in local currency terms.

Three stores were closed during the period, taking the total of stores in Australia to 153.

Sales in Canada rose 14.3% to $55 million, followed by the US up 12.5% to $12 million and New Zealand rising 7.1% to $109 million.

Same-store sales in the US rose 17.2%, followed by New Zealand up 7.3% and Canada rising 5.8%.

Michael Hill opened no new stores in Canada, one in New Zealand and nine in the US.

"The board is satisfied with the progress of the US operation over the past twelve months but acknowledges there is still as long way to go before the business is proven up in the US market," Sir Michael says.

"Focus remains on improving both the top line sales and the margins in order to grow the bottom line in the nine stores over the coming 12 months."

Sales for the company’s professional care plan, which offers maintenance and repairs on jewellery, rose 56% to about $27 million.

“As the PCP business is still relatively new [having been introduced in October 2010] the group feels it remains too early to accurately predict the margin and therefore the profitability of the PCP business," Sir Michael says.

"The group is confident however that the PCP's figures will contribute positively to the margin and profits of the overall business."

The company will pay a dividend of 3.5 cents per share on October 5, up from 3 cents last year, taking the year's total dividend to 5.5 cents.

Its shares last traded at $1.09 and have gained about 25% so far this year. The stock is rated "outperform" based on the consensus of two recommendations compiled by Reuters.

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