Harvey Norman chairman Gerry Harvey says consumer pullback is widespread as profit dives

Gerry Harvey says a pullback in consumer spending is being felt right across the business, amid the most turbulent period facing Australians in 30 years.

Harvey Norman’s pre-tax profit has halved in the September quarter amid a broadbased pullback in spending on appliances, TVs and furniture, as chairman Gerry Harvey warns that Australians are facing the most turbulent period in 30 years.

The billionaire businessman, however, remained optimistic about a Christmas bounce despite the cost-of-living crunch stemming from inflation and interest rates seeing many consumers switching to cheaper products or delaying purchases.

“We’re looking at Christmas and thinking it will be very good as it always is, and with the unemployment below 4 per cent you question why it would it terrible. You always expect that Christmas will be good,” Mr Harvey told The Weekend Australian.

It came as the business reported that sales at its Harvey Norman, Domayne and Joyce Mayne franchised stores dropped by 9.1 per cent during the three months to September 30.

Australian franchises were the hardest hit, with aggregate sales down 13.6 per cent and 13.9 per cent on a comparable sales basis, while New Zealand fell 1.6 per cent and 3.3 per cent for comparable sales.

Harvey Norman’s profit before tax and non-controlling interests dropped 49.1 per cent to $86.2m in the quarter.

Mr Harvey said the quarter was worse than he had expected as sales deteriorated across a number of major markets.

“Slovenia is likely to have its worst year because of the floods … New Zealand has fallen off a cliff, but that is turning around since the change of government.

“We are fairly optimistic that we will go okay. The biggest problem we have is that our sales have dropped and our costs have gone up.

“Now we have to think about what we do to address that to make sure that we grow the company and get profit up.”

Harvey Norman chairman Gerry Harvey warned in August about the impact of inflation on consumers. Picture: Paul Miller

Ireland was its strongest performer with aggregate sales up 13.7 per cent from a year ago and Singapore increased 6.9 per cent.

Mr Harvey said the downturn was being felt across the board.

“It is down everywhere, it is just a matter by how much. There is no product out there that has not been affected — it just goes right across the board,” Mr Harvey said.

“We are seeing that people who would buy a $2000 fridge opt for a $1500 one or put it off a big longer if they can. If a fridge or TV break down people will buy one regardless of the situation as they are not going to go without. But we are not seeing as many people look to trade up.”

Retailers in the past few months have reported a rapid decline in the amount of money consumers are spending with the cost-of-living crunch forcing households to divert cash to cover the rapid increase in rents, mortgage repayments and utility bills.

Competitor JB Hi-Fi disclosed on Thursday that sales at The Good Guys fell 12 per cent during the first three months of the financial year and sales at JB Hi-Fi stores were slightly lower.

Mr Harvey said he was unsure what would happen with interest rates, unemployment or inflation, adding that it was the most volatile period that Australians had faced since the late 1980s.

“I’ve seen the current situation happen many times since I started out in the 1960s so it doesn’t really matter to me, but in the last 30 years we haven’t seen this level of turbulence as much,” he said.

“Now we are now in a position where politicians and economists have no idea where all of this is going. You can’t listen to someone and have confidence at the moment.”

He added that there was a big chunk of Australians doing it tough with retailers such as Harvey Norman better placed than the politicians and other experts at gauging the reality on the ground.

“By being in every city and town across this country, we get a broad look at how different places are faring. We’ve found that there are some places doing the same and others that are much more affected.

“The 30 per cent of people that own their home outright have never been better off than now, but at the same time we have 30 per cent of the population who rent and they’ve never been worse off. The people with a mortgage, you can say that a third of them are struggling.”

Harvey Norman also announced a buyback of up to 10 per cent of shares for a cost of $442m after an 8 per cent drop in the past month.

E&P Capital retail analyst Phillip Kimber said Australian first quarter sales were lower than the 13 per cent it had forecast, and that he expects a 5-10 per cent downgrade to FY24 consensus following the update.

Harvey Norman shares gained 4.8 per cent to $3.72 on Friday.