Harvey Norman positive despite 18% fall in profits

The stock gained momentum with the company announcing a positive outlook for the future.

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Heavy discounting activity, global currency swings and property write-downs weighed on Harvey Norman's (ASX: HVN) results, with the retailer announcing a 17.5% decrease in full-year profits.

For many retailers, the last year has been plagued with poor consumer and business confidence, as well as growing concerns regarding growth in the online retail sector. Despite this however, the release of the report saw the stock rise over 4%, with the encouraging announcement from the company that it sees the market improving.

Whilst the profit was affected by a $41 million write-down in the value of its properties, the electronics, white goods and furniture retailer's margins were largely squeezed as it aggressively discounted its products in an attempt to lure customers. As interest rates dropped further however, the company saw an increase in consumer confidence – particularly in regards to home appliances and furniture products.

On top of the 17.5% decrease in net profit after tax (NPAT) – where property revaluations were included – some other key results included:

  • A 3% decrease in global sales. The company stated that sales were negatively affected by a deterioration in both the Euro and the UK pound, although a 2.7% appreciation in the NZ dollar positively affected the result
  • NPAT (excluding property revaluations) fell 3.3% to $183.4 million
  • A 4.2% increase in net assets, to $2.33 billion
  • Total full-year dividend payout of 9 cents (same amount as last year)
  • Earnings per share of 13.39 cents – down 17.5% from last year

Outlook

Much like other retailers such as Myer (ASX: MYR) and David Jones (ASX: DJS), Harvey Norman will continue to expand its online presence, which will ensure new opportunities for growth as well as new ways to engage with consumers.

Furthermore, as the company pushes its omni-channel strategy – whereby it requires all franchisees to focus on delivering 'quality, value and service' to ensure an outstanding shopping experience for all customers – it aims to create a relationship with customers that will keep them coming back for new transactions.

With the company seeing a return of confidence to the marketplace, it also anticipates that its home appliances, bedding and furniture categories will continue to grow, which it says will provide it with a "solid platform to continue to maintain revenue growth."

Foolish takeaway

Harvey Norman is a well-run company and is making the right decisions to ensure its business remains competitive and relevant in the future. However, whilst the retail sector remains volatile, it may be wise to add this company to your watchlist and wait for a more attractive entry point – particularly considering its 52% rise since early February.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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