The share price of Harvey Norman Holdings Limited (ASX: HVN) has fallen in line with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) – a decline of 4.5% – since the leading retailer released its full year results for the financial year (FY) ending 30 June 2015 back in August last year.
While Harvey Norman's relative performance to the index could be considered OK, its share price performance compared with peer JB Hi-Fi Limited (ASX: JBH) which has rallied 16.5% over the same time frame is disappointing for shareholders.
Double Whammy
To understand why Harvey Norman's stock may have underperformed JB Hi-Fi's, here are two possible explanations…
- Harvey Norman operates a significant property portfolio and is also a major retailer of furniture and homewares. As such the group is exposed to what many believe is a cooling property market.
- In September last year Harvey Norman announced the acquisition of a stake in land and farm assets including dairy operations. This is obviously a significant divergence from the group's core business and a move which could have alarmed some investors.
Outlook
While there are some signs that the property market is cooling, at the time of the group's FY 2015 profit result last year chairman Gerry Harvey was upbeat, stating
"The outlook for the property market in Australia remains positive, particularly new starts, renovation expenditure, and secondary market clearance rates…With franchisee sales turnover for the period 1 July 2015 to 27 August 2015, up 5.5% on a headline basis and 6.6% on a like-for-like basis on the corresponding prior year period, I remain positive about the outlook for Harvey Norman."
Given Harvey Norman's business operations and size the group could be considered a "bell weather" stock for insights into the state of the wider economy.
The implosions of high profile retailer Dick Smith Holdings Ltd (ASX: DSH) and the headwind imposed on retailers by the significant weakening of the Australian dollar will surely make Harvey Norman closely watched when it reports towards the end of this month.
