Michael Hill profit sinks after COVID closures

Shares in jewellery chain Michael Hill fall as much as 6pc after a slump in full-year profit.

Michael Hill Jewellers shut stores as the pandemic struck. Picture: Jake Nowakowski

Michael Hill is giving the demi-fine jewellery category another shot with the launch of a trendy, low cost, online-only spin-off brand, Medley Jewellery.

The official launch of the new brand came a week ahead of the company’s full-year results announcement on Wednesday, with Michael Hill announcing it would scrap its final dividend as it unveiled a net profit after tax fell to $3.1m for the 2020 fiscal year, down from $16.5m the prior period.

That result was impacted by the forced closure of all its stores amid COVID-19 restrictions. Still, Michael Hill, which operates in Australia, New Zealand and Canada, said that sales had begun to recover as stores reopened on the back of eased restrictions.

The result failed to impress investors and prompted a 4.6 per cent drop in the company’s shareprice to 32c a share.

The launch of the new Medley brand comes two years after Michael Hill closed the last of its bungled Emma & Roe-branded stores and scrapped plans to reposition the demi-fine brand.

The company had endured a string of profit warnings and share price collapses, partly due to its loss-making Emma & Roe and its flailing US operations.

Months after announcing the brand would be wrapped up in 2018, Michael Hill appointed former deputy Myer chief executive Daniel Bracken as its new boss.

Mr Bracken told the Australian on Wednesday that Michael Hill’s fresh play into the demi-fine jewellery category would have a frequent rotation of fashionable products, aimed at millennial consumers.

“This demi-fine end of the market is something we’ve tinkered around with in the past but this is a really serious play for us in arguably one of the great sectors,” Mr Bracken said.

“The price points range between $49 and $300 so it’s very much playing to that fashion consumer.”

The nature of the traditional Michael Hill brand relies heavily on an in-store sales process, making it vulnerable to COVID-19 closures. In the past, online sales had had a lower average transaction value.

Online sales for the 2020 fiscal year grew more than 54.7 per cent but that still only represented about 5 per cent of total sales for the period.

Still, Mr Bracken said that the COVID-driven store closures over the past six months had freed up the company to focus on developing an enhanced digital offering, including virtual sales initiatives where customers could book an online consultation with a sales assistant or virtually “try on” jewellery by a taking a photograph.

“The online category never resonated with that much penetration online, it was a much lower transaction value that we were getting online than what we were getting in our stores,” Mr Bracken said.

“COVID changed that because if you wanted to get engaged and you wanted a Michael Hill engagement ring, you couldn’t go to our stores.”

The new digital offering resulted in the chain selling at least one $15,000 engagement ring during the COVID-19 lockdowns.