Michael Hill triples pre-COVID annual profit in six months

Michael Hill triples pre-COVID annual profit in six months

Shares in jewellery retailer Michael Hill International (ASX: MHJ) edged close to 12-month highs this morning after announcing glistening results for the December half, with expectations of a $56-60 million profit for the period.

This compares to earnings before interest and tax (EBIT) of $21 million for the entirety of FY19, and just $14 million in FY20 as the company was plagued by coronavirus-related shutdowns and a massive drop in sales.

However, around 80 per cent of the company's sales tend to occur in the December half, and in the last two financial years Michael Hill International ran at significant losses in the six months to June 30.

The Brisbane-based group still suffered from a range of temporary store closures in Australia and Canada during the peak sales season in the lead-up to Christmas, but initiatives like virtual selling and contactless pick-up allowed Michael Hill to take advantage of sales opportunities.

The group managed to lift its margins by 150-250 basis points in the half, and same-store sales were up 6.3 per cent in the half.

Michael Hill lags behind many of its ASX-listed retail peers when it comes to its percentage of digital sales, but the category more than doubled in the six months to December 31, now representing 5.8 per cent of total sales.

In terms of comparable EBIT, the company's results were up 30-40 per cent year-on-year to $41-45 million. 

It is also worth noting currency variations with New Zealand and Canada have also worked in Michael Hill's favour when reporting in Australian dollars.

"Following a strong first five months, it was particularly pleasing to see all markets deliver positive same store sales growth for the all-important Christmas trading period," says Michael Hill International CEO Daniel Bracken.

"I am delighted that our strong trading performance across the half, coupled with our unwavering focus on costs, has in turn delivered material EBIT growth for the Group, in spite of challenging trading conditions worldwide."

Bracken says the rhythm of the business an its strategic initiatives have operated in unison.

"Furthermore, the disciplined in-store execution by our dedicated retail teams delivered impressive results during the critical last few weeks of December," he says.

"These results reaffirm our continued focus on a balance of both margin and sales growth, underpinned by a number of our strategic initiatives - brand, digital transformation, loyalty, retail fundamentals, and product mix.

"As we emerge from our critical trading period, with a stronger balance sheet, a leaner operating model and evolving strategies, I'm looking forward to welcoming two new leaders, who together with our existing executives, will continue to transform and inspire the business for growth."

The executive says he could not be prouder of the dedication, energy and resilience of the group's teams, prioritising "best-in-class health and safety protocols and continue to delight our loyal customers".

"All of our global markets were directly impacted by the pandemic in the first half, and I would like to make special mention of our Victorian and now our Canadian teams, who have weathered extended periods of disruption for both themselves and their families," he says.

MHJ shares were up by 6.6 per cent at $0.725 by 12:30pm AEDT, having reached $0.735 in the morning.

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