Sometimes life just becomes All Too Hard

Gerry Harvey wandered out to Sydney's Flemington Markets the other day and caught up with a few mates, one a restaurant owner and another who owned a forklift company. He reckons they were whingeing about the state of the economy and their businesses.

He reckons on any given day he gets mixed messages about how the broader economy, and the retail market he inhabits, are faring.

This folksy kind of anecdotal talk is how Harvey - a retail operator of 40 years - discusses the performance of his company, Harvey Norman.

His gauge of the economy is not particularly scientific and won't cut it with investors.

His wife, Katie Page, who is the company's chief executive, has the task of talking to the investors and analysts who understandably demand the more granular and forensic dive into the earnings and the various metrics that make up the result.

Harvey doesn't attend the analyst presentation and still resents even being stuck with the media. And to the extent that he is up for a chat he would rather talk about the fact that his recent purchase for $20 million of the top-class racehorse All Too Hard, has been blitzing the competition and that its stablemate won the Oakleigh Plate last week.

He doesn't want to talk about the money he made personally on Qantas shares over the past six months, but he is happy to reveal he made money on bank stocks, even though he sold too early.

In a conversation with Harvey, it is easy to be diverted from the fact that his retail empire has had a fairly poor performance this year - profit was down 39 per cent for the half to December. He is certainly prepared to call the retail environment the worst he has seen in his 40 years.

But Harvey Norman is a different corporate beast than most retailers. It is a property play as well as a retail play. It's an operator and a franchise provider, thus its results reflect the returns on the traditional retail businesses and the property that contains them.

It's a more complicated story because the property gets revalued up and down (which gets captured in the profit results) and the company's support for its franchisees moves around (and this also gets reflected in the results.)

If one strips out the movement in the valuation of property in the December period and the previous corresponding period, the result reflects more accurately how the retail business is performing. It is still not good but pre-tax earnings are down a more moderate 5.2 per cent. This is far short of a stellar performance but is more in line with the results of comparable companies.

The notable point in the commentary from Harvey Norman is its prospects. The reason the company's share price reacted positively on Thursday (jumping more than 8 per cent) is that January sales are up quite strongly and Harvey says this continued through February.

Having said this, he is the first to admit that one month or even two doesn't represent a trend - it is just a good start.

Harvey Norman is not alone in seeing some green shoots in the start of this calendar year. Most retailers are experiencing similar things.

While retail sales are improving they are coming off a low base. To be improving sales on this time last year doesn't mean all that much. Last year was lousy.

Harvey is not the first to suggest that we as consumers might be moving from the savings cycle into the buying cycle. It is a point that was made by the chief executive of the Commonwealth Bank, Ian Narev, a few weeks ago.

This "trend" - if that is what it is - needs to be sustained.

Over the past two years of difficult retail conditions we have seen some positive months followed by some disastrous months.

Harvey makes some additional observations. In some of the company's product categories he reckons Harvey Norman has been given a boost by a reduction in competition.

But the most discernible difference over the past six months is that the savage discounting has abated.

The race to lower prices has been a feature of the past couple of years and there is a feeling among most retailers that this unsustainable discounting has eased.

This alone will improve sales and gross margin performance.

The next contributor to sales, particularly in the area of IT and audio visual, will need to be the emergence of new product.

Consumers love new electronic toys and the take-up of iPads at the expense of televisions is a good case in point.

But in a broader sense the commentary from Harvey Norman is consistent with the broader dialogue that consumer sentiment is slowly recovering, in part thanks to a belief that the macro environment is more favourable.

Europe doesn't seem as dire as it was a year ago, longer-term debt issues appear to have been swept under the carpet for the time being, and the US economy is improving albeit at a glacial speed. China's hard landing has turned out to be a soft landing.

And we are all feeling a bit wealthier and psychologically robust because the stock market is powering ahead. Even the value of our houses is incrementally improving.