HARVEY NORMAN LATEST PROFITS SLUMP 25 PER CENT

THE grim state of the retail sector was laid bare today when market leader Harvey Norman revealed a 25 per cent slump in pre-tax profit.

The announcement sent the retailer’s shares tumbling with nearly 4.8 per cent wiped off the value of the company in the morning, with shares trading at $1.97. The shares staged a recovery and by mid-afternoon were down 2.42 per cent at $2.02.

At the same time, Super Retail Group, owner of brands including Super Cheap Auto and Amart All Sports, bucked flagging retail trends by recording like-for-like growth since the start of the year.

The group featured growth in all three divisions, up three per cent in Auto & Cycle and Sports, while leisure was up 2.3 per cent.

Harvey Norman (ASX:HVN), established by Gerry Harvey (pictured), says the high Australian Dollar and intense competition has cutting deep into the company’s profit.

Profit before tax for the nine months to March is down 24.8 per cent (67.5 million) to $204.8 million, compared to $272.3 million for the corresponding period last financial year.

The audio visual and technology component of the business has been hardest hit.

“Technology categories continue to be affected by a decline in average selling price,” says HVN chief financial officer Chris Mentis.

“This is attributable to the high Australian dollar and intense competitor activity.

“This competitor activity has increased to in part to the collapse of WOW Sight and Sound and the recent activity around the anticipated closure of part of the Dick Smith Electronics business."

The company blamed weather conditions and said a mild summer has resulted in an underperformance in seasonal categories like air conditioning.

Whitegoods did well and achieved growth in the quarter, while furniture and bedding remained stable.

“Harvey Norman’s strategic position on these categories resulted in significant growth above the market for the period,” says Mentis.

“Even though the industry is experiencing a slowdown due to the soft housing market, furniture and bedding continue to perform.”

Mentis says franchisees worked hard to maintain market share, however this required an increase in franchisee tactical support.

“The strength of the Australian dollar and continued price deflation has eroded average selling prices and ultimate, retail gross profit margin,” he says.

Global sales totalled $4.39 billion for the nine months ended March 31, down 6.7 per cent on the corresponding period last financial year. Like-for-like sales decreased by 6.6 per cent in the same period.