Harvey Norman punished after dividend cut
A record profit has not been enough to save Harvey Norman from a sharemarket savaging after the retailer cut its full-year dividend on Thursday.
Harvey Norman shares had fallen 7 per cent – or 31?? a share – by midday after it announced a fully franked 26?? a share dividend for the the 2017 financial year, down from 30?? in 2016.
The company said it was reviewing its capital management and weighing up a share buyback and possible investments.
The sell-off came despite Harvey Norman announcing its net profit jumped 29 per cent to $449 million for the year, beating analysts’ expectations.
Sales from company-owned stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia rose 2.1 per cent and earnings jumped 24 per cent to $90 million.
“This is a fantastic effort from our offshore operations,” company chairman Gerry Harvey said in a statement.
“The success of our flagship strategy is clearly evident in these results.”
Australian franchisee sales increased 5.4 per cent to $5.62 billion as housing construction and renovation continued to be “robust”, Mr Harvey said.
This sales growth and higher franchisee fees sent Harvey Norman head office’s earnings from Australian stores up 13 per cent to $304.5 million, the company said.
Morgan Stanley analyst Tom Kierath said there had been a “considerable slowing” in comparable sales at Harvey Norman in the fourth quarter, growing at 2.3 per cent compared to 7.4 per cent in January and February.
While “tactical support” for struggling franchisees was $4.6 million lower than last year at $64.4 million, Mr Kierath said it was $4.6 million higher in the second half compared to the same period in 2016, “indicating a higher level of stress on franchisees”.
Harvey Norman’s share price has slid by almost a quarter over the past year, under the weight of fears Amazon will eat into its sales and profitability when the American online retailer opens in Australia next year.
Citi analysts have suggested competition from Amazon could force Harvey Norman to lower its profit margin by between 1.8 and 2.5 per cent.