Sales fall for Harvey Norman franchisees despite record year

A weak economy is to blame for Harvey Norman franchisees recording a drop in sales, chairman Gerry Harvey has told investors.

In its latest results presentation, the iconic retailer revealed that Australian franchisee sales had fallen 1.8 per cent to $5.66bn. Harvey suggested a housing market downturn and broader economic stagnation had sapped confidence from the sector, and was unlikely to end soon.

“I don’t think (the downturn) will be over soon … I think (Australia) is very lucky we’ve done as well as we have done,” Harvey told AAP.

“We’re looking at interest rates going down to near zero … unemployment remains low but growth is not at what the Reserve Bank wants … yes it will hurt us, but my ambition is not to hurt as much as the next bloke.”

Capital raising

The poor sales result for Harvey Norman franchisees comes just days after the retail brand unveiled a $173.49m capital raising announcement, set to reduce debt.

“With debt… you want to avoid being in that bottom 10 or 15 per cent (of companies) … who will go broke in a recession,” Harvey said.

“You want to be prepared for the recession that will come … Will it be next year or 30 years? I don’t know, so we’ve got to prepare.”

Harvey Norman results

Despite the drop in sales for Harvey Norman franchisees, it wasn’t all bad news for the heritage retailer.

Offshore stores once again delivered strong results, with the company’s international segment reporting a monster year for profit. According to the results, international operations generated a 7.2 per cent profit increase to $402.3m for the 12 months to June 30.

Additionally, total sales increased by 12.1 per cent to $2.23bn, with profitability jumping 11.7 per cent at the 90 company-operated stores in Asia and Europe. It’s a significant step for the retail giant, with this year’s result marking the first time Harvey Norman’s sales had hit the magic $2bn mark.

Harvey said he was satisfied with the international growth, however remained cautious of global conditions.

“We’re not doing too bad, we’re moving along – but all the experts in the world are trying to grow the economy, get GDP growth – and no-one can figure out how to do it,” he said.

Harvey Norman franchisees moving forward

On a local scale, the chairman said Harvey Norman franchisees have continued to invest in their operations in anticipation of federal government tax cuts, stabilising house prices and increase in small business and home-loan lending.

Harvey also indicated that the retailer had begun replicating its successful overseas premium store format in Australia and New Zealand.

AAP reported that Harvey Norman is set to grow its international footprint with up to 21 new stores within the next two years, including 17 in Singapore and Malaysia.

Source: Alex Druce, AAP