Michael Hill cuts jobs and stores as earnings tumble

Jewellery chain Michael Hill has cut jobs and reduced store numbers as challenging conditions cause a plunge in its first half earnings.

Michael Hill has pruned its senior executive ranks and closed underperforming stores after flagging a sharp deterioration in first half earnings amid challenging conditions for the fine jewellery sector.

After three years of record results, the jeweller expects to post comparable earnings before interest and tax (EBIT) of $30m to $33m for the 26 weeks to December 31, a slump of up to 45 per cent on the previous first half’s $54.5m performance.

“Whilst the first half was definitely a challenging period for our business with sales for the core Michael Hill brand down, we are encouraged by our performance against the broader jewellery sector,” CEO Daniel Bracken said in a trading update.

“Clearly margin was under pressure from both input costs and promotional activity, and inflationary forces saw elevated costs across many aspects of the business, which together impacted EBIT for the half.

“As a result, the company has taken direct actions to reduce operating costs, including the exit of a number of senior management roles.”

The retailer said group sales, including for its Bevilles brand acquired last year, were up 4.1 per cent for first half to $363.8m, but sales for the flagship Michael Hill brand are down, compared to last’s year record first half result.

New Zealand sales were particularly hard hit, falling 10.3 per cent to $NZ65.4m ($60.7m).

Digital sales continued to return to growth, the company said, and represented eight per cent of total group sales for the period.

“Even though consumers continue to monitor their discretionary spend, our multi-brand strategy puts us in a strong position to continue taking market share from our competitors as we expand the Bevilles network and elevate the Michael Hill brand,” Mr Bracken said.

The retailer’s margins were down and are expected to be in the range of 61 per cent to 62 per cent for the half, due to higher input costs for gold and diamonds in addition to aggressive retail trading conditions.

Michael Hill CEO Daniel Bracken. Picture: Richard Walker

The retailer has trimmed its store footprint, reducing the overall number across Australia, Canada and New Zealand to 302, down from 304 at the end of last financial year. It opened four new Bevilles stores, taking the network to 30 but cut five underperforming Michael Hill stores in Australia and one in Canada, reducing the portfolio to 272 stores.

Michael Hill shares, which lost one fifth of their value over the past year, rose 1c to 89c on Friday, valuing the company at $343m. The stock had traded as low as 22c in the early stages of Covid-19 pandemic in 2020 when retailers were forced to shutter their stores.

Shares in fellow retailer Lovisa, one of last year’s stars, are down 5.3 per cent since Tuesday after UBS analysts downgraded the jewellery and fashion chain to a neutral rating given a strong rally in its share price over the last six months and a slowing in new store growth.

The latest Australia’s national retail figures for November, released last week, showed spending grew by just 2.2 per cent compared with last year.

National Retail Association director Rob Godwin said when inflation and population growth were taken into account, the figure represented a reduction in real terms.

“We predict the first quarter of 2024 is going to be the most challenging quarter for businesses in many years,” he said.