Harvey Norman boss warns prices are rising as inflation hits the Australian economy

The retail billionaire is the latest to flag higher prices saying that everything in the market will become more expensive as inflation pressures start to bite.

Harvey Norman chairman Gerry Harvey and CEO Katie Page. The retailer has seen its asset base grow past the $4bn level thanks to its growing property portfolio while its retail chains were hit with a profit and sales slide in the first half as Covid-19 hit. Picture: Sam Ruttyn

Harvey Norman chairman and retail billionaire Gerry Harvey has added his voice to the chorus of Australian company CEOs warning of the inflationary pressures now running rampant in the economy, warning that “there was nothing not going up” in price right now.

Mr Harvey told The Australian after his retail giant posted its first-half results that he had already been forced to raise the prices for his goods at Harvey Norman stores, across categories such as consumer electronics, bedding, homewares and white goods, with sustained price hikes the new reality for the Australian economy.

“Prices are going up, there is no doubt about that,” Mr Harvey said on Friday.

“There is nothing not going up in the whole market. Doesn‘t matter whether it’s petrol or food, everything is going up at the moment and that’s why everyone is talking about inflation. It is true it is happening.

“Now they are talking about interest rates going up, but the Reserve Bank says they are pretty much not and everyone says the Reserve Bank’s wrong. And so the best guess is that interest rates will go up, but they won’t go up by as much as some people think.”

Mr Harvey said he had begun to raise prices at his stores.

“Yes sure, everyone has,” Mr Harvey said.

This week Woolworths chief executive Brad Banducci warned that grocery prices had already gone up this year by 2 per cent to 3 per cent and said inflation was “a live and real” issue with other companies this reporting season flagging price rises that have already been pushed through or are about to.

It comes as Harvey Norman on Friday posted its first dip in sales and profitability since the Covid-19 pandemic began and consumers rushed his stores to fill up their homes with coffee machines, a new couch or plasma TV, although its earrings were bolstered by its bulging property portfolio.

The retailer posted a 6.7 per cent fall in its interim net profit to $430.91m as revenue fell 6.2 per cent to $4.91bn, as the strengthening momentum in the home renovation market and heightened consumer demand since the start of the pandemic, continued to drive sales across key home, lifestyle and consumer tech product categories with the “home” continuing to be the focal point for consumer spending.

Its December half profit did beat market expectations with its Australian arm particularly strong on better margins and despite Harvey Norman offering rent relief to some tenants.

Shares in Harvey Norman ended up 16c, or 3.2 per cent at $5.15.

It was however the first sales and earnings retreat since late 2019 and the emergence of Covid-19.

Harvey Norman’s asset base, fattened by the growing property portfolio, pushed through the $4bn level for the first time and with its property portfolio boosting December half profits by more than 80 per cent to fuel strong earnings for the retailer as it faced the challenges of dealing with Covid-19 in Australia and at its overseas stores.

In a trading update accompanying its latest half-year financial results, Harvey Norman said sales had rebounded between January 1 and February 21 across all the countries it operates in, except for Ireland where sales growth was flat, with same store sales growth in Australia up 1.5 per cent.

The improving sales in Australia is a turnaround from the more than 11 per cent slide in same store sales for its flagship Australian stores between July and November 2021 as the Covid-19 pandemic played havoc with supply chains, consumer confidence and saw forced store closures and travel restrictions across the country.

Mr Harvey labelled it a “solid result” for the half given the unprecedented Covid-19 issues encountered by the retailer during the half.

Harvey Norman said its EBITDA fell 3.3 per cent to $754.41m while earnings before interest and tax were down 4.7 per cent to $637.76m and profit before tax was down 20.5 per cent to $482.87m.

The retailer’s extensive property portfolio, which acts to bolster and boost profits through the retail cycle, had tangible property assets exceeding $3.5bn in the first half and achieved a property segment profit result of $197.74m, up by $88.65m or 81.3 per cent.

The flagship Australian franchising operations posted a segment profit of $292.85m for the first half, a decrease of $91.11m or 23.7 per cent, which was affected by nearly four months of government mandated closures affecting over 15 million people or 58 per cent of the Australian population.

Australian franchisees were adversely affected with hard lockdowns throughout most cities and regions in NSW, VIC and the ACT for a period of up to four months, representing retail closures of nearly 60 per cent of the total number of Australian Harvey Norman, Domayne, and Joyce Mayne franchised complexes for the majority of the first quarter.

Mr Harvey said Harvey Norman’s company-operated overseas retail stores – spread across Malaysia, Singapore, New Zealand, southern Europe, Ireland and Northern Ireland – now comprises 27 per cent of total profit before tax excluding net property revaluations.

Offshore company-operated retail segment profit before tax decreased by $9.67m or 7 per cent to $128.48m for the first half due to extensive mandated closures in New Zealand and Malaysia, coupled with supply-chain disruptions due to Covid-19.

Harvey Norman declared a flat fully-franked interim dividend of 20c per share, to be paid on May 2.

Harvey Norman said company net assets exceeded the $4bn milestone for the first time this half. Picture: NCA NewsWire/Dean Martin