Jeweller Michael Hill to shut as more retailers withdraw guidance

Jeweller Michael Hill has suspended the operation of its stores in Australia and NZ amid measures to fight coronavirus.

Michael Hill chair Emma Hill in one of the jeweller’s retail stores. Picture: AAP

Jeweller Michael Hill International has immediately suspended the operation of its stores in Australia and New Zealand amid measures to fight coronavirus.

The Australia and New Zealand-listed jeweller said in Australia “the current ‘social distancing’ guidelines are not consistent with the day to day conduct of our business”, while consumers were also focused on more serious issues.

New Zealand, meanwhile, has moved to an essential services-only shutdown.

Australian operations will be suspended “for an indefinite period with immediate effect”.

Michael Hill had already shut down its Canadian stores.

The company earlier said it had decided to postpone its 1.5 cents per share interim dividend for six months, reporting a fall in foot traffic as its Canadian stores shut indefinitely.

It came as two more prominent Australian retailers pulled their earnings guidance in the wake of the economic shocks triggered by the coronavirus pandemic.

The move was despite furniture retailer Nick Scali and baby furniture and equipment chain Baby Bunting reporting positive sales momentum to date and a pick-up in activity by Chinese suppliers.

It also appears that for many retailers online sales have been particularly strong, likely reflecting the decisions of many consumers to stay home during the pandemic.

Nick Scali shareholders also face some pain, with the retailer deciding to postpone the payment of its interim dividend to the end of the year to maintain healthy cash reserves.

Baby Bunting will also preserve its cash by holding back on $7 million on planned expenditure for the rollout of a new brand and will also push back the relaunch of its website.

Both Nick Scali and Baby Bunting joined other retailers in withdrawing their earnings guidance amid the uncertainty that is closing industries like travel and hospitality, and dramatically slowing the economy.

Many retailers are scrapping or delaying dividend payout to ensure they have enough cash reserves to withstand the worst of the looming economic upheaval.

Both Nick Scali and Baby Bunting did however report that sales had been resilient heading into the accelerating coronavirus pandemic over March.

Supplies ‘returning to normal’

In a statement to the ASX, Baby Bunting said that during the second half to March 22 total sales growth was 12.4 per cent and comparable store sales growth 6.2 per cent. Growth in online sales in the same period was 28.6 per cent.

On a year-to-date basis, total sales growth was 10 per cent and comparable store sales growth was 2.5 per cent, Baby Bunting said.

It also said inventory, supplier factories and international logistics were generally returning to normal and there had been minimal impact on its supply chain to date.

But given the uncertainty associated with COVID-19, Baby Bunting said it was making appropriate adjustments to reduce costs and capital expenditure and preserve available funds. This includes deferring around $7 million of capital costs that were scheduled for the second half, primarily associated with the rollout of the new brand across the full store network.

It is now expected that the relaunch of Baby Bunting’s new website will not occur in the current calendar year.

Performance to date has been in line with fiscal 2020 earnings guidance, Baby Bunting said, and the balance sheet remains strong with approximately $27 million of unused funds available.

“However, in light of ongoing developments and increasing uncertainty arising from the unknown potential impact of COVID-19, Baby Bunting considers that it is now no longer appropriate to continue to provide earnings guidance. Accordingly, it withdraws the previously issued fiscal 2020 guidance.”

Nick Scali said recent feedback from suppliers suggested supply chain issues were subsiding and delivery times were beginning to return to normal.

“The company expects this will continue to improve over the coming months and position Nick Scali favourably to complete delivery of orders in a timely manner.”

It said for the first two months of 2020, written sales orders growth was 3 per cent on a comparable store basis.

However, in the last 10 days Nick Scali has seen considerable reductions in both store traffic and sales orders which, due to its business model, is expected to hit revenue in coming months.

Because of the speed and volatility of the pandemic, Nick Scali said it could not give an earnings outlook for 2020. It would also need to push back paying its interim dividend.

“The company currently has $39m of cash on hand and $34m of gross debt outstanding, secured on a non-recourse basis against the property it owns, with further no loans on the balance sheet,” it said.

“The company has always sought to operate with a conservative balance sheet in order to position itself favourably in the event of any prolonged downturn in the retail environment.

“In order to maintain the company’s strong balance sheet during this uncertain time, the directors have decided it is prudent to defer the payment of the previously announced 25 cents interim dividend that was due to be paid on 27 March 2020 until 2 October 2020.”