Will online boost and lab-grown diamonds mean a glistening future for Michael Hill?

Sales rose by 3.3 per cent for iconic jeweller Michael Hill International (ASX: MHJ) in the second quarter while new initiatives in e-commerce and synthetic diamonds set the scene for potential future growth opportunities.

Online sales still only accounted for 3.3 per cent of the company's $203.5 million in revenue, but Michael Hill website sales surged 47.1 per cent in a quarter characterised by challenges over the Christmas trading period.

A reduced store footprint in Australia meant domestic sales were down 0.9 per cent at $105.9 million, but domestic same-store sales were up 1.6 per cent at $103.5 million.

This reduction was more than offset by Michael Hill's overseas operations in Canada and New Zealand, which combined account for almost half the company's sales with growth rates of 5.4 per cent and 3.7 per cent respectively.

"The business had a solid October and a very strong November on the back of launching our Christmas campaign early to capitalise on the Black Friday weekend," says Michael Hill International CEO Daniel Bracken.

The decision to pull forward sales to November pre-empted a significant change to Christmas trading patterns.

"While the shift in consumer behaviour saw a significant uplift in November sales in all markets, our sales in early December were somewhat disappointing."

"Pressure on gross margin continued in all markets, with deep-discounting from many competitors.

"The Australian retail environment was particularly difficult given prevailing low consumer confidence, the competitive environment in our industry segment, together with foreign exchange and gold price headwinds."

The company found a bright spot through its branded collection sales - a segment founder Michael Hill has previously told Business News Australia was a key growth foundation for building consumer loyalty, selling products with good stories behind them.

In FY19 the branded collection accounted for 32.5 per cent of sales, but now that has been lifted to 35.4 per cent of the total. Hill ultimately hopes the collection will reach a 50 per cent share.

In addition, Michael Hill has made new moves in the online space as its "refreshed retail operating model continues to evolve", and it is experimenting with lab-grown diamonds.

"We are excited by the initial "online only" launch of our loyalty program, Brilliance, which has seen close to 50,000 customers sign up, many of whom are new to the brand," says Bracken.

"Our Laboratory Grown Diamonds trial has been deliberately and carefully deployed across all markets. Early stage success will now see further investment in this exciting new market space, with additional stores being added in the coming months.

"These results position us well for the balance of the year, as we focus on key initiatives and brand profile in each market. There is a real air of enthusiasm across the business with a focus on delivery of initiatives that continue into the second half."

Bracken added that in response to Australian bushfires the company has contributed $100,000 to the Australian Red Cross' Disaster Relief and Recovery fund.

Related story: EXCLUSIVE INTERVIEW: Sterling success for Michael Hill after 40 years

Business News Australia