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Highlights
- Legal Setback: Federal Court rules in favor of ASIC, finding Harvey Norman and Latitude Finance guilty of misleading advertising.
- Investor Reaction: Shares fell 1% to AU$4.53 after the company updated on the ongoing case.
- Analyst Optimism: Despite challenges, several brokers remain bullish, eyeing a potential retail sector recovery.
Harvey Norman Holdings Ltd (ASX:HVN) saw its shares dip into the red on Tuesday, falling 1% to AU$4.53 after providing an update on the Federal Court case brought against it by the Australian Securities and Investments Commission (ASIC). The case has been a lingering issue for the company and its financing partner, Latitude Finance, since it was first initiated in 2022.
The legal proceedings center around advertising campaigns run by Harvey Norman and Latitude between January 2020 and August 2021. These advertisements touted a "60 equal monthly payments, interest-free" deal. However, ASIC contended that the ads were misleading because consumers were required to sign up for a credit card contract that imposed additional fees, such as establishment charges and ongoing account service fees.
In a significant development, the Federal Court ruled in October in favor of ASIC, declaring the advertising campaign as misleading and deceptive. ASIC emphasized that the financial obligations linked to the advertised payment method were more burdensome than consumers were led to believe. “Consumers deserve to be fully informed about the terms and costs of financial products," ASIC stated.
Harvey Norman’s latest update includes the court’s reasoning and a copy of the declaration sought by ASIC. The ruling highlighted that from January 2020 to August 2021, the advertisements implied customers would only need to pay the price of the goods over 60 equal monthly payments. In reality, they were also required to bear additional financial costs, breaching Section 12DA(1) of the ASIC Act.
Looking ahead, the penalty hearing has been scheduled for after May 19, 2025, leaving uncertainty over the fines or consequences Harvey Norman might face. The legal ramifications could weigh on the company’s shares, adding another layer of pressure to an already challenging retail environment.
Despite the legal setback, some brokers maintain a positive outlook on Harvey Norman. While the case raises concerns, analysts point out that it does not affect the retailer’s core business operations. The company has been navigating tough conditions, with profit before tax falling by 30% in FY24 due to softer consumer spending and rising costs. Still, analysts at Evans & Partners recently upgraded their view on Harvey Norman, citing signs of a potential rebound in the retail sector and resilient earnings prospects.
CommSec data shows that six out of fourteen brokers still rate the stock as a buy, indicating confidence in Harvey Norman’s long-term value. This bullish sentiment is driven by expectations of improved retail conditions and a recovery in consumer demand.
