Michael Hill profit drops 66 per cent due to US exit costs

Thursday, 22 February 2018

Michael Hill International Phil Taylor says the cost of exiting the US is yet to be finalised.

Michael Hill's decision to pull out of the United States and restructure its demi-fine jewellery brand, Emma & Roe, is estimated to cost upwards of NZ$20 million.

The New Zealand company, which is dual listed on the Australian and New Zealand sharemarkets, has reported a 66 per cent drop in tax-paid from A$25.8m (NZ$27.5m) to A$8.7m for the half year ending December.

Michael Hill sales were up in New Zealand, but profits dipped.

The decision to close all nine stores in the US was announced in January, after months of declining sales. The exit was expected to be completed by the end of the 2018 financial year.

Michael Hill International chief executive Phil Taylor said while the closure costs were significant, the ongoing losses from the US business 'were going to be much more over coming years' if it continued trading.

Sir Michael Hill founded the jewellery company in 1979.

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The NZ$20m figure was an estimate based on the company's plan to close the US stores and restructure Emma & Roe, Taylor said.

It did not include staff payouts, he said.

'These won't be known until we have an actual closure date.'

In a statement to the NZX on Thursday, the company said it would either sell the US business or reach agreement with landlords of the stores.

The decision to exit the US allowed management to focus on growing its Canadian market, the company said.

Seven new stores were opened in the Canada during the second half of 2017 and another was due to open in the next few months.

Michael Hill hopes to increase its retail footprint in Canada from 83 to 105 stores during the next two to three years.

Last month, Taylor said the US business had struggled to provide a return, despite 'significant investment' since entering the market in 2008.

The group's core Michael Hill businesses in Australia, New Zealand and Canada performed strongly during the first-quarter but experienced a slowdown in the second quarter, particularly in November.

Sales in New Zealand were up 4 per cent to NZ$69.7m, but lower profit margins and higher payment plan costs meant the operating profit for the region was down 4.6 per cent to NZ$15.8m.

Michael Hill International was founded by Sir Michael Hill in 1979 when he opened his first jewellery store in Whangarei.

The group has a total of 347 stores, with 317 Michael Hill stores in Australia, New Zealand, Canada and the US, and 30 Emma & Roe stores in Australia and New Zealand.

The group's headquarters, including its wholesale and manufacturing divisions, are in Brisbane, Australia.

Shareholders will be paid an interim dividend of A2.5 cents a share, fully imputed on March 29.

Michael Hill shares were unchanged at $1.16 on Thursday.