Softer sales dent Harvey Norman

Analysts have downgraded Harvey Norman’s earnings forecasts based on the retailer’s trading update.

Gerry Harvey arrives at the Harvey Norman AGM. Picture: Richard Dobson

As the heat receded from a bruising Harvey Norman annual general meeting on Wednesday, in which chairman Gerry Harvey went into battle against shareholder activists, analysts focused on the actual retail business and the trading update that pointed to softening sales for Harvey Norman’s flagship Australian stores.

Before the AGM, Harvey Norman updated investors on its sales performance for the past four months that showed year-to-date sales up 1.7 per cent with five of its seven markets slowing since July.

From July to October, Australian comparable store sales rose 0.4 per cent but UBS analyst Ben Gilbert estimates that in Australia sales fell year on year in September and October.

“The slowing in Australia is consistent with recent updates from (furniture retailer) Nick Scali, but in contrast to The Good Guys, which saw the rate of comparable sales decline ease into August/September, albeit this excluded October.

“However, we see headwinds in Australia via increasing competition, following years of industry consolidation which could see Harvey Norman’s ability to continue gaining share ease, with potential margin pressure.”

UBS does believe, however, that Harvey Norman is executing well offshore. “New Zealand and Malaysia were the bright spots with both reporting an acceleration in sales growth.”

CLSA analyst Mark Wade was more forthright in his report to clients, titling his report “No Harvey Norman, No” and reiterating his sell recommendation on the stock, given what he sees as Harvey Norman’s corporate governance record.

Citi analyst Bryan Raymond downgraded earnings forecasts by about 1 per cent but maintained a neutral rating and $4 target price.

He estimates, based on the sales update, that like-for-like sales at its Australian stores slowed to -2.1 per cent in September and October from 3 per cent growth in July and August.