MICHAEL HILL SHOWS STEADY GROWTH IN TOUGH RETAIL CONDITIONS

MICHEAL Hill overcame tough trading conditions in the lead up to Christmas to increase net profit after tax 3.4 per cent to $25.8 million in the six months ended 31 December 2016.

It has been a tough few months for retailers in Australia, where at least two well-known fashion groups have entered voluntary administration during the period, but Michael Hill (ASX:MHJ) has continued growing.

The Brisbane-based group recorded a record half-year EBIT of $40 million (up 13.5 per cent pcp), from $327 million revenue (up 5 per cent). Same store sales were up 0.8 per cent on the same period last year.

"Overall this was a reasonable result for the group given the difficult and lumpy trading conditions across most markets," says the company in a release to the ASX this morning.

Eight new Michael Hill stores were opened during the period for a total of 305 stores at the end of the half year, and the same number of Emma & Roe stores were opened bringing the total to 24 stores.

There are plans for another 10 Michael Hill and six Emma & Roe shops in the second half.

Emma & Roe is still a loss-making business, but there will be enough stores open by July to begin some television advertising in the 2017-18 year, which will assist in lifting the brand's modest sales.

"The plan is to continue new store growth to create a critical mass of stores in the Queensland and NSW advertising catchment areas which will allow us to market this new brand more effectively," says the company.

"The new stores opened during the half won't make positive contributions until additional marketing spend is able to be funded from a larger store base in the large and lucrative NSW market."

In the jewellery retailer's core market of Australia, the company grew EBIT 3.1 per cent to $33.66 million, but it was a mixed bag in foreign markets. Canada was a star performer with EBIT up 26 per cent to $8.8 million and same store sales growth of 6.8 per cent.

However, United States continues to be a loss maker and the company has made a management change by putting Canada boss, Brett Halliday, in charge of the entire of North America.

Same store sales fell 9.3 per cent in the United States but gross margin improved and expenses were reduced producing a smaller operating loss than in the previous year.

"The company still views the US as a viable growth opportunity and will continue to innovate and test this large and lucrative market with a view to opening more stores when the time is right."

Meanwhile, New Zealand achieved a good operating result of EBIT $16.5 million despite flat sales by focusing on margin management and cost control. It also paid NS$22.6 million to settle a tax dispute.