Michael Hill sales fall short at Christmas

Michael Hill expects first half earnings in a range of $34 million to $36 million, down from $34.8 million a year earlier, Photo / Wayne Drought

Michael Hill International, the jewellery chain that bears its founder's name, said sales growth stalled in the second quarter, which limited earnings growth in the first half of the year.

"December quarter sales, including the critical Christmas trading period, fell short of our forecasts and didn't deliver the improvement over last year that the company had expected," the Brisbane-based company said in a statement.

Earnings before interest and tax in the six months ended Dec. 31 were in a range of $34 million to $36 million, from $34.8 million a year earlier, it said.

In its annual report published in September, chief executive Mike Parsell said the chain was seeking an increase in same-store sales and ebit in the 2012/13 financial year, especially in Australia.

Michael Hill is the first NZX 50 company to give an earnings update ahead of the results season that kicks in next month and investors are waiting to see whether more companies give guidance ahead of their results.

"Most companies are going to be cautious in terms of their outlook statements," said Shane Solly, portfolio manager at Mint Asset Management. "February is going to be pretty interesting."

Despite the weaker-than-expected second quarter, Michael Hill's sales for the first half rose 8.8 per cent to $312.8 million, led by growth in its biggest market of Australia, up 9 per cent to $206.7 million. Sales in New Zealand rose 3.7 per cent to $63 million, Canadian sales rose 19.4 per cent to $36 million and US sales rose 0.8 per cent to $6.7 million.

On a same-store basis, sales rose 2.6 per cent to $287.7 million, with Australian sales on that basis up 2.6 per cent and New Zealand up 3.1 per cent.

"All four markets struggled to gain traction over last year's sales in the second quarter" though they achieved "solid" same-store sales growth, it said.

Shares of Michael Hill last traded at $1.25 and have advanced 43 per cent in the past year. They are rated 'outperform' based on two recommendations compiled by Reuters.