Michael Hill shares slide on poor trading update

Diamonds might be forever, but at the moment, the cost of living crisis is forcing many shoppers to pull back on picking up a pricey necklace or ring.

The downturn in consumer confidence and spending is hurting jewellery retailer Michael Hill.

Shares in jewellery retailer Michael Hill slumped more than 20 per cent to a fresh four-year low on Monday after an anticipated uptick in consumer confidence and spending failed to eventuate to leave the retailer’s sales under pressure and its margins pinched.

Michael Hill, which also owns jewellery chain Bevilles, late on Friday issued a poor trading update which showed that for the first 45-weeks of fiscal 2024 group sales for both its retail brands were up 4.7 per cent on last year and the sales for the core Michael Hill brand were still negative.

Given the compressed sales and continued gross margin decline, previously reported first half earnings had been eroded by an earnings loss of around $10m for the third quarter of 2024.

The retailer said that in Australia, the performance in the core Michael Hill brand had improved marginally compared to the first half, but remained negative to last year. The Bevilles brand has also not meet sales expectations and had been further impacted by the relocation of its head office and systems integration process.

New Zealand was also struggling and was the chain’s hardest market, while Michael Hill stores in Canada were operating much better and was the retailer’s best performing market.

Michael Hill said that its gross margin was being compressed by increased competition in the jewellery sector, which was using more promotions and discounting to shift product, while higher gold prices was also denting its profitability.

On Monday when shares in Michael Hill opened, allowing investors to react for the first time following the trading update released late on Friday, shares in Michael Hill fell more than 20 per cent to 49.5c – a four-year low.

Michael Hill has had a volatile trading performance recently, enjoying stronger sales conditions coming out of Covid-19 but now its business under pressure from cost of living issues and tighter household budgets.

“There is no doubt that consumer discretionary spend, and the fine jewellery category in particular, remain under pressure due to macroeconomic forces,” Michael Hill chief executive Daniel Bracken said.

“Higher interest rates are leading to a sustained and prolonged decline in consumer spending. Looking forward, as interest rates moderate, we anticipate sales and margin recovery.”

Michael Hill, which recently opened its new flagship store in Melbourne’s Chadstone shopping centre that has a strong tilt towards more expensive jewellery, said that for the Australian business its sales for the fiscal year to date was up 12.3 per cent, New Zealand sales down 11.1 per cent and Canada down 0.4 per cent. The Australian sales were boosted by the inclusion of the Bevilles brand.

This month, Mr Bracken said he believed the end of the pandemic would see ­relationships getting back on track, pointing to an “engagement boom” next year.

“So, we have a reliance on those relationships happening and at some point one year, two years or three years after the couple meet, they want to get married and get engaged, and we definitely have seen what we are calling an engagement gap.

“And we are confident, and we have looked at a lot of data about how long it normally takes for a first date to engagement, and we believe that we are going to start to see an upsurge in 2025.”

Originally published as Michael Hill shares slide on poor trading update