KEY POINTS:
Tough retailing conditions have forced jewellery retailer Michael Hill International to dampen expectations for its half-year results.
It warned yesterday that the trading result for the six months ended December 31 would be "materially below" last year's record result of $19.45 million.
Much of the drop was due
to lower margins from the sale of goods, and one-off costs associated with an internal restructure and the move into the US market. It also excludes tax benefits from an internal restructure.
Chairman Michael Hill said December sales targets were difficult to meet in the tough retailing climate, particularly in New Zealand and Canada.
"Margins for the group will be significantly lower for the half due to exchange rate deterioration on inventory purchases and also due to the difficult conditions that necessitated us going on 'sale' in all markets earlier than normal. A conscious decision was made to target sales at the expense of margins due to the uncertainties of the current economic climate."
Managing inventories and cashflow was seen as a priority, he said.
Total sales for the six months were $226.9 million, up 8.7 per cent from the $208.8 million recorded in the previous corresponding period.
Six-month same-store sales for New Zealand were down 9.3 per cent to $48 million, while total New Zealand sales were down 7.6 per cent to $49.6 million. In Canada, same-store sales were down 10.4 per cent to C$10.1 million ($14.4 million), while total sales were up by 3.9 per cent to C$14 million.
The Australian market recorded a 1.2 per cent rise in same-store sales to A$113.7 million ($136.6 million) while total sales were up 5 per cent to A$125.4 million.
The 17 US stores acquired from Chicago-based Whitehall Jewelers in September contributed US$4.1 million in sales. Whitehall, which had been operating since 1895, was forced to liquidate its 373 stores last year after several years of financial difficulties.
Michael Hill seized on the opportunity, paying US$5.5 million ($8 million) for the stores in Illinois and Missouri.
Hill said at the time that he viewed the deal as a strategic opportunity to test its retail model in the highly competitive US market, albeit at a challenging time for the economy. He did not expect the stores to be profitable for several years.
Michael Hill shares closed at 54c, down 3c. The company releases its interim result on February 20.
Michael Hill sales for 6 months end Dec 31
NZ
2008 - $49.6m
2007 - $53.7m
Australia
2008 - $150.6m
2007 - $137.5m
Canada
2008 - $19.8m
2007 - $17.7m
USA
2008 - $7.0m
2007 --
TOTAL
2008 - $226.9m
2007 - $208.8m