Harvey Norman profit slips amid cool conditions on the east coast

Chairman Gerry Harvey says the retailer’s result was bolstered by its $4bn property portfolio as consumers pulled back spending due to cost of living pressures.

Harvey Norman has suffered a near one-third drop in its full year earnings and cut its dividend with chairman and major shareholder Gerry Harvey warning the ballooning cost of doing business - from wages to energy - was acting as a dead weight on the Australian economy to endanger the nation’s prosperity.

Although Mr Harvey did not believe Australia was currently in danger of lurching into a recession, the pressures on businesses and consumers alike was clearly evident and was threatening to rein in business investment and shoppers spending money on goods and services.

“I think business is going to get knocked around a bit, this year, wages have gone through the roof, electricity prices, just everything you can think off and we have this big inflation problem but when you are running a business and you look at your costs you think, this has gone up,” Mr Harvey told The Australian.

“I think total business across the country, as well as the world, is impacted by these huge (cost) increases.

“But it is nothing like a recession,” the retailer added. “In the country areas pretty good, in the city areas they are suffering so overall a bit subdued. But it is not like we are in a recession, it’s just I think a lot of people in the last couple of years of the pandemic there was some ‘advanced buying’ and probably that plays into it as well.”

On Thursday the consumer electronics, bedding, appliances and whitegoods retailer posted a slightly better than expected annual profit of $539.5m, although that was down 33.5 per cent. Earnings of $680.23m, down 27.8 per cent, was in line with guidance given to the market in June.

The retailer said over the year its balance sheet remained strong, despite cost of living pressures and a slowing economy and consumer, with total assets of $7.67bn, anchored by a $4bn property portfolio.

Revenue of $4.28bn across all business segments eased by 5.1 per cent, off a high base last year, but was up by 25 per cent on 2019. Revenues received from franchisees were down by 10 per cent on the back of a reduction in aggregated franchisee sales revenue by 4.9 per cent to $6.42bn in 2023. Total group sales slightly weakened to $9.193bn.

The retailer said sales at its Australian stores did suffer in the second half of 2023, as the second half of 2022 saw its local outlets flooded with shoppers looking to buy up goods after being set free from lockdowns and travel restrictions. Cool temperatures across Australia’s east coast also dented recent sales momentum, especially in categories such as fans, barbecues and outdoor furniture.

Harvey Norman’s growing offshore retail operation, which stretches across eight countries from New Zealand and Singapore to Ireland and Croatia and a network of 111 stores contributed $2.6bn in revenue last year and delivered 21 per cent of Harvey Norman’s annual pre-tax profitability.

The retailer remains on track to hit its ambitious target of almost tripling its stores in Malaysia to 80 by the end of 2028 and would be opening eight stores in the country in 2024.

Overseas retail profits declined by 40.1 per cent to $139.06m however, primarily due to the macroeconomic headwinds and significant deterioration in business and consumer confidence in New Zealand and a contraction in trading conditions in Europe, the company said.

Harvey Norman declared a final dividend of 12c per share, down from 17.5c, to take the full-year dividend to 25c per share, down from 37.5c in 2022. The final dividend will be paid on November 13.

Mr Harvey said the retailer had delivered a substantial 40 per cent growth in net assets since the beginning of the pandemic, rising to $4.47bn as at June 30, 2023.

In a trading update accompanying the results, Harvey Norman said same store sales in Australia for the month of July fell 12.6 per cent, New Zealand sales were down 4.7 per cent and sales in Malaysia down 5.7 per cent.

Citi analyst Andrian Lemme said the franchise segment of Harvey Norman’s earnings beat expectations on better than expected margins while the weaker international businesses performance missed, particularly Ireland. A final dividend of 12c per share was ahead of Citi expectations of 8c.

Shares in Harvey Norman were up 4.4 per cent in midafternoon trade at $4.01.

Harvey Norman co-founder and chairman Gerry Harvey. Picture: Richard Dobson