Michael Hill International said an initial review of its Australian retail employment contracts and rostering practices showed non-compliance with some industry requirements over the past six financial years and may cost the jewellery chain up to A$25 million to remedy.
The Brisbane-based company, which also operates stores in New Zealand and Canada, said it has begun a more detailed review of all employee records, rostering practices and payments, which will "take several months to complete."
The remediation of these issues is estimated to cost between A$10 million to A$25 million, the company said in a statement. Rectification and remediation is not expected to have any material impact on its underlying earnings for the year ended June 2020, or any future financial years, it said.
"We will move as quickly as possible to rectify any underpayments with those team members affected," chief executive Daniel Bracken said in a statement. "I will be in contact with all team members today to apologise on behalf of the company and to provide an outline of the process we are following to establish who is impacted."
In a separate trading update, Michael Hill posted a 0.1 per cent gain in June-quarter sales from continuing operations. It was the first three-month period in the 2019 financial year that they didn't fall, although the company noted that margin compression continues.
Same-store sales rose to A$123.2 million in the quarter ended June 30, while total sales fell to A$132.6 million, down 0.8 per cent from the same quarter in 2018.
For the year, same-store sales were down 3.5 per cent at A$524 million, while total sales were 4.5 per cent lower at A$563.4 million.
Gross margin fell to 61.1 per cent in the year ended June 30, from 62.8 per cent for the prior year, the company said.
"Gross margin has experienced some compression due to the competitive retail environment and related clearance activity, ongoing foreign exchange headwinds impacting cost of goods, and sector consolidation," the company said.
E-commerce sales rose 43.6 per cent to A$16 million for the year, accounting for 2.8 per cent of total sales this financial year, compared with 1.9 per cent in the previous year.
Michael Hill shares last traded at 56 cents on the NZX, and have fallen about 12 per cent so far this year.
The group said it opened 10 new stores while it closed 11 "underperforming" stores along with five Emma & Roe stores during the year. As of June 30, the company had 306 stores including one remaining Emma & Roe store.
In Australia, where it had 168 stores, total quarterly sales fell to A$71.9 million, down almost 6 per cent from a year earlier. Full-year sales were 8.6 per cent lower at A$313.1 million.
In Canada, it had 86 stores and reported total quarterly sales of C$31.3 million, up 3.7 per cent. Annual sales rose 1.5 per cent to $130.4 million.
In New Zealand, it had 52 stores and reported quarterly sales of NZ$28.6 million, up 0.7 per cent. Annual sales fell 4.3 per cent to NZ$119.8 million.
The company will announce its full-year results on Aug. 16 and also provide an update on the progress of the strategic initiatives and the customer-led retail operating model.