Harvey Norman shares tumble on profit drop

MELBOURNE - Harvey Norman Holdings, Australia's biggest furniture and electronics retailer, reported an unexpected 14 per cent decline in second-half profit after cutting prices to lure shoppers. The company's shares slumped.

Net income fell to A$70 million ($75.8 million) in the six months ended June 30 from A$81.8 million a year ago. Sales rose 9 per cent to A$1.96 billion.

Second-half profit was expected to rise to A$85.7 million, according to the average estimate of nine analysts surveyed by Thomson Financial.

Executive chairman Gerry Harvey, 65, had to cut prices to win sales as higher borrowing costs and surging fuel costs slowed demand for flat-panel televisions and digital cameras.

Harvey, one of Australia's richest men, plans to expand overseas with more stores in New Zealand, Ireland and Europe to limit the effect of slowing sales growth at existing outlets.

"It's been a tough time for retailers and this underlines that with profit margins under pressure," said Philip Parker at Parker Asset Management in Sydney. "It's going to take some time for the overseas stores to fire."

Full-year net income was A$171.4 million.

The company's shares fell 12Ac, or 4.44 per cent, to A$2.58. The stock has fallen 18 per cent this year.

In the fiscal year ended June 30, Harvey Norman sales rose 10.6 per cent to A$3.67 billion, compared with 15.9 per cent growth in the previous year. At stores open at least a year, sales growth almost halved to 5.3 per cent from 9.9 per cent.

Harvey Norman will pay a second-half dividend of 3.5Ac, down from 4.5Ac a year earlier.

- BLOOMBERG