Michael Hill books profit, despite US weakness

michael hillMichael Hill CEO Phil Taylor has booked a 66.8 per cent increase in net profit after tax (NPAT) to 32.6 million for the year ended 30 June, amid a repositioning of its Emma & Roe brand and the introduction of proprietary lines to Michael Hill.

The company recorded a 5.8 per cent increase in revenue to $582 million for the year, while earnings before interest and tax (EBIT) was up 2.3 per cent to 48.1 million.

As it advised the market in July, comparable sales were up 1.5 per cent across the group, with 8.8 per cent same-store growth in Canada and 1.2 per cent growth in Australia driving the positive result.

Taylor told investors on Monday morning that the introduction of proprietary lines into Michael Hill would cause some short-term pain for the company, including capital expenditure associated with design and margin pressures due to the clearance of old stock.

He is, however, confident that the new “collections” range will be a pillar of the brand’s future growth, providing it with a key point of differentiation in the market and more flexibility around fashionability – an area of the market that’s growing relative to the traditional fine segment.

“We do have a commitment to the branded collection strategy, we see it as the major differentiator for our brand in the mid-market,” Taylor said.

“The flipside to that is that we need to make space for that in the store as well as funding that via capital requirements,” he continued, referencing a 35 per cent increase in capital expenditure for the year to $33.1 million, which was also impacted by legal costs from the last calendar year.

At the more fashion-focused Emma & Roe brand, a review has been kicked off after significant investment yielded a 1.9 per cent decline in same-store sales and involves a repositioning of price and style.

Still “opportunity” in the US

Taylor still sees an opportunity in the US, despite comparable sales declining 8.8 per cent for the year, saying that the disruption associated with management changes, including the appointment of Brett Halliday as CEO, have now “settled”.

“If we can stabilise [US operations], get some growth back in it gives us some options to look at what else we can do with the business [and ask] where else we can take it,” Taylor said.

“It’s very much a case of exploring and thinking about the options, because it is a very large market and it is strong in our category – if we can find the right model it’s a huge opportunity for the business.”

Taylor has previously said it will be “hard to justify” continuing the US venture to the board if a material improvement can’t be achieved by the end of FY18.

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