Covid-19 trading restrictions have taken the shine off jewellery group Michael Hill (ASX: MHJ) with total store revenue down 11.9 per cent in the third quarter of FY20.
The results come as the listed retailer cuts board fees and slashes executive bonuses entirely to manage the fallout from the financial crisis.
The effects were felt the most in Canada, the region where the company was forced to close its retail stores first, where same-store revenue was down 21.1 per cent during the quarter.
The company's results for the first nine weeks of Q3 FY20 demonstrate strong sales figures in the lead up to the crisis.
Positive sales growth of 3.1 per cent was maintained throughout January and February, and at the end of February same store sales for the group were up 5.7 per cent against the prior year.
E-commerce sales were up significantly in the first nine weeks of Q3 by 49.1 per cent, representing 3.6 per cent of all quarterly sales for Michael Hill.
These strong sales results came immediately before the company was forced to close all of its stores in Australia, New Zealand and Canada, resulting in the standing down of all retail staff and more than 100 support centre team members.
"The company entered the crisis on a strong footing in all markets and channels," says Michael Hill CEO Daniel Bracken.
"The crisis has afforded us the ability to really focus on our digital business and we will emerge with a much bigger and stronger offering."
This focus on digital is necessary in the Covid-19 economic reality, and Michael Hill says its online store is successfully operating in Australia and Canada with product being fulfilled from its Brisbane distribution centre.
Orders continue to be accepted on its New Zealand website, but delivery will be delayed until New Zealand Government restrictions are lifted.
In addition to shutting down all stores to manage the Covid-19 crisis Michael Hill has reduced all board member fees by 50 per cent for the remainder of FY20.
Executive cash bonuses have been cut to zero for the second half of the financial year and all executives have agreed to a 20 per cent cut in remuneration for the remainder of the financial year.
Pre-Covid-19 the company was actively engaged in an employee remediation program to address an historic misapplication of the General Retail Industry Award to the tune of between $10 million and $25 million.
This program has since been put on pause, but former team members owed outstanding unpaid wages will be paid with interest once the crisis blows over.
Michael Hill says it is in a good position with regard to its balance sheet and liquidity to enable it to push through the crisis and beyond; the retailer's net debt at 29 March 2020 is approximately half the available facility limit of $70 million.
The company's board has also decided to defer payment of its interim dividend for a period of six months.
"A crisis always creates opportunities," says Bracken.
"The combination of strong performance leading into the crisis and the decisive actions we are taking to preserve cash and strengthen our balance sheet will leave us well positioned to lead the market through the recovery period and we will emerge as a stronger, leaner, and more agile business," says Bracken.
Updated at 10:58am AEST on 17 April 2020.
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