Harvey Norman has booked a fall in sales and profit and as cut its interim dividend

The Harvey Norman chairman has vehemently defended the retailer’s interim results, which showed a drop in sales, profit and a skinnier than expected dividends.

Harvey Norman chairman Gerry Harvey believes the retailer has the balance sheet strength to withstand macro-economic headwinds and cost of living pressures. Picture: Richard Dobson

Harvey Norman chairman and co-founder Gerry Harvey has vehemently defended the retailer’s interim results, which showed a drop in sales, profit and a skinnier than expected dividend, saying the sharemarket reaction of a 12 per cent share price slide was a “total over reaction”.

The billionaire retailer on Tuesday also said segments of the economy were in danger of talking the nation into recession, with the Australian economy showing great strength marked by low unemployment and consumers still cashed up and happy to spend on goods such as TVs, computers, furniture and white goods.

“In the big picture everything is quite good. It is not as good as it was going but we aren’t going into recession. We can’t get people to work in agricultural, hospitality so how others can talk about how we are going into a recession – they are leading people astray.

“The story every day that interest rates are going up, people are suffering and things are going to get worse – well of course people are going to hold back if they read that every day but the reality is those people are very much in the minority and the great bulk of people out there, 9 out of 10, are doing quite well.

“The standard of living we have in Australia is one of the highest in the world.”

But the consumer electronics, whitegoods and furniture retailer has detected the early signs of a slowdown in consumer expenditure on discretionary goods, with sales at its flagship Australian stores reversing growth through 2022 to post a 10 per cent slide in sales for January.

The softer sales growth in January was mirrored earlier this month by retail rival JB Hi-Fi and The Good Guys.

Cooler than usual temperatures on the east coast led to a decrease in the sales of seasonal products, Harvey Norman said. Picture: Richard Walker

The sales turnaround and an interim profit result viewed by analysts and the market as disappointing saw Harvey Norman shares slide almost 13 per cent before closing down 31c, or 7.45 per cent, at $3.85.

On Tuesday Harvey Norman reported that its interim net profit fell by 15.1 per cent to $365.9m as sales across its local and overseas retail network hit $4.98bn, up slightly from $4.91bn in the previous corresponding period.

The company declared an interim dividend of 13c per share, down from 20c, against analyst forecasts of around 18c. The dividend is payable on May 1.

Mr Harvey said the sharemarket reaction was a “total overreaction”, calling it “mad” and that investors should be delighted with the result.

“Harvey Norman is on a 6 per cent dividend yield, or better, at $4 a share and we only paid out half (our earnings) in dividend; if we paid out the lot it would be a 12 per cent dividend fully franked. We have a wonderful record of paying dividends over 35 years.

“We’ve got a long record that’s very, very good and so the market … should be delighted, not disappointed.”

However, despite the macroeconomic headwinds and cost of living pressures affecting discretionary retail, Harvey Norman believes its strong balance sheet, led by its billion dollar property portfolio, has left it in a solid position to withstand these challenging circumstances.

Meanwhile, the retailer will further accelerate its expansion overseas, opening more stores in New Zealand and Malaysia and on track to open its third Croatian store by the end of calendar 2023. It remains committed to the significant opportunity to grow in Malaysia from its current network of 28 stores to 80 by the end of 2028.

Harvey Norman said that in the first half of fiscal 2023 cooler than usual temperatures on the east coast of Australia led to a substantial decrease in the sales of seasonal products – such as airconditioning units, fans, air treatment units, outdoor furniture and barbecues – by electrical and furniture franchisees.

It said the cyberattack on Optus at the end of September 2022 initially didn‘t harm sales, but by November 2022, the news surrounding the attack had an adverse impact on the technology franchisees and the Optus partner.

Harvey Norman said trading conditions started to normalise in the December half against the first half of 2022 where around 60 per cent of the total number of Australian Harvey Norman, Domayne and Joyce Mayne franchisee complexes were mandated to close for nearly four months.

Its pre-tax profit was well above pre-pandemic levels, increasing by $221.52m, or 73.6 per cent, from $301.15m in the first half of 2020. Analysts were worried about franchisee receivables – a proxy for franchisee inventory – which increased to $928m, up $310m, compared to pre-Covid levels of $618m, implying industry margins could come under pressure.

In terms of outlook, Harvey Norman said despite the macroeconomic headwinds and cost of living pressures affecting discretionary retail it was in a solid position to withstand these challenging circumstances.

But sales for the start of the second half were weaker, with total sales at its Australian stores down 10.2 per cent over January, and down 10.4 per cent on a same-store basis. Comparable sales were also weaker in New Zealand, down 8.5 per cent, and Malaysia, down 10.2 per cent. Same store sales in Slovenia and Croatia were up 10 per cent.

Originally published as Harvey Norman has booked a fall in sales and profit and as cut its interim dividend