Michael Hill International (ASX: MHJ) witnessed a stock price slump of over 26% on October 15, 2018 (3:10 PM AEST) as the group announced its trading update.
KEY POINTS - Group revenue for continuing operations has gone down by 8.8% for the past three months till end of Q1, 30 September 2018. The sales of the store has reduced by 11.0%. The cause of the reduction in sales is partly due to underestimating the activities related to the marketing and promotions which is required to support the strategic shift of the group without any dependence on discount-based pricing. As compared to the previous year, the gross margin has gone up by 64.6% for the quarter which was 63.1% prior year. This was due to the strengthening of the strategy and growth in the brand loyalty and also the customer valued the collection and the products in the store. During this period, Michael Hill has opened three stores and closed three under-performing stores; and as a result the total MHJ store count has been 306 as at 30 September 2018. As per the previous announcements made, four Emma & Roe stores were closed this quarter. However, their website continues to trade. The e-commerce sales has gone up by 84.9% ($3.4 million) this quarter and this represents the increase in sales by 3.0% of total sales for the Group.
As per Phil Taylor, the CEO of Michael Hill International (ASX: MHJ), this quarter as per the strategy of MHJ showcased that the gross profit margin of the Group increased and as a result its reduction in dependency on discount-based events was noted. He is also confident to further increase the gross margin if there is a reduction in the level of discounting and price-based events, which he assumes to be the correct strategy and will ultimately result in the improvement in the brand and product value of the customers. MHG remains to committed to the strategy and as per learning form this quarter the company is pretty confident about its performance in the December quarter which is the crucial one in spite of the challenging transition. In order to reposition the group from being an omni channel brand from a traditional retailer, the group is now focusing in the execution of the five strategic shifts. There has been a good progress made with regards to the digital and data strategies, with further investments made in the key infrastructure and systems, and the completion of the design work on unique branded collections.
“The Group is also pleased by the improved results on its e-commerce strategy with online revenues growing by 84.9% during the quarter. e-commerce will remain a focus so that we can deliver a more integrated and engaging experience for our customers by better connecting our online platform with in-store opportunities,” Phil said.
The sales in the same stores across Australia got reduced by 12.8% with one store opened followed by three stores closed that were under-performing which shows a total of 169 stores trading at 30 September. The sales of the same stores across New Zealand reduced by 7.6% and the total number of stores during this period was 53 in count which include a new store which opened this period. The sales of the same stores across Canada reduced by 11%.
The company has shown a negative performance of -27.20% throughout its journey. The 6 months performance report shows -18.75% stock downfall. The YTD performance is of -24.95% in terms of stock price movement. The company made a gross profit of 63.7%. The return on the shareholders fund was 17.8%. The current ratio of the company is 2.6 indicating company’s ability to meet its short-term obligations. At present the company’s share is trading at A$ 0.670 with market capitalization of A$352.57 million and PE ratio 76.47x.
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