Retail and property giant Harvey Norman Holdings Limited (ASX: HVN) announced its full-year results today with the market more than impressed by its performance. The shares surged more than 10% higher to a new three-year high of $3.62, after it reported a 48.9% increase in net profit after tax (NPAT) (including property revaluations) to $211.7 million, which smashed consensus estimates of $203.4 million, according to Bloomberg.
Here are some of the other highlights from the report:
- Earnings before interest and tax (EBIT) excluding property revaluations, up 19.2% to $349.15 million
- Net assets (excluding non-controlling interests) rose by 6.1% to $2.47 billion
- Global sales of $5.77 billion, up 4.7% on a like-for-like basis
- Earnings per share (EPS) rose 48.8% to 19.93 cents
- Dividends per share rose by 5 cents to 14 cents per share, fully franked
The stock has been a solid performer for shareholders in recent years, having now jumped 98% since the beginning of 2013.
So What: Today's result came on the back of strong performances from each of the company's business segments, including integrated retail, franchising, property and its digital system. This defied the otherwise challenging Australian retail environment. Although profit from operations in Asia declined due to falling consumer sentiment, it was offset by stronger results from New Zealand, Ireland and Australia.
Sales in Australia have likely also strengthened as a result of the red-hot property market and low interest rate environment. Chairman Gerry Harvey believes this trend will continue on into FY15 to enable it to strengthen its market-leading position in the homemaker category, and continue delivering improved performance.
Now What: Harvey Norman's impressive result obviously took the market by surprise and it's very pleasing to see the company performing strongly in light of the growing online retail sector. However, investors considering buying the shares ought to be cautious. To begin with, recent reports have suggested the Australian property sector could be significantly overvalued – should cracks start to appear. Notably that could have a substantial impact on demand for homemaker goods.
Investors also need to consider the price they are willing to pay for the shares. Right now, they are trading on a P/E ratio of 19.3x and offer a yield of 3.9%. I'd probably be more inclined to buy shares in its rival JB Hi-Fi Limited (ASX: JBH) which trades on a P/E ratio of just 13.2 and offers a much more attractive 5% fully franked yield.
