Harvey Norman
Recommendation
Harvey Norman’s woes continue, with same store sales in Australia down 8.7% for the quarter ending 30 September. The company’s Slovenian and Croatian businesses experienced a 12.8% fall in sales (in local currency terms). Other regions fared better, but were buffeted by the high Aussie dollar (see Table 1). In total, like-for-like group sales fell 7.8% and profits fell a more painful 20.3% to $50.1m. The company conveniently blamed ‘cautious consumers’ and ‘price deflation’ for the falls, but we suspect more company-specific issues. That position is galvanised by the relatively stronger performance of equally exposed business such as JB Hi-Fi.
Country | 1Qtr 2013 vs 1Qtr 2012 (like-for-like) | |
---|---|---|
Reported (%) | Constant currency (%) | |
Australia | -8.7 | -8.7 |
New Zealand | -1.3 | 0.4 |
Slovenia/Croatia | -22.0 | -12.8 |
Ireland | -0.9 | 10.7 |
Northern Ireland | 24.2 | 25.7 |
For most retailers, such poor results could mark the beginning of the end. But for the property rich Harvey Norman, lease liabilities won’t bring the company unstuck. In fact, the net value of its property now exceeds the company’s market capitalisation. We have some reservations about how this property is valued, and what an increasingly competitive and changing retailing landscape means for this business. It deserves a fresh look, so expect a detailed review on the retailing giant soon. For now, with the share price down 9% since Harvey Norman: Result 2012 of 3 Sep 12 (Hold – $2.00) the company remains a HOLD.