The Harvey Norman Holdings Limited (ASX: HVN) share price has sunk 5% to $4.18 this morning following the release of its full-year results.
Key takeaways from the release include:
- Profit before tax of $664.82 million (excluding impairment losses), up 26.3% on FY 2016.
- Net profit after tax increased 28.8% to $448.98 million.
- Net profit after tax excluding property revaluations increased 18.6% to $373.2 million.
- Earnings per share of 40.6 cents.
- Dividends per share of 26 cents fully franked.
- Net debt increased to $640.3 million.
- Board considering a possible share buy-back.
Overall I felt this was a reasonably solid result from Harvey Norman.
Although it did receive a boost from the benefits of property revaluations, even when they are excluded net profit after tax still rose by a sizeable 18.6% to $373.2 million.
A key driver of Harvey Norman's profit growth was the big improvement in the performance of its retail operations in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia.
Furthermore, its franchising operations segment saw a 13.6% increase in profit to $304.53 million. This was the result of strong growth in franchisee sales and an increase in margins due to higher franchise fee revenue.
Finally, the company declared a final fully franked dividend of 12 cents per share, down from 17 cents per share in the second-half of FY 2016. The final dividend takes its full-year payout to 26 cents per share, compared with 30 cents last year.
I believe this surprise cut to its dividend and its rising debt may be behind today's decline.
However, the board is undertaking a review of its capital management options which may result in a share buy-back in the future.
Should you invest?
Based on today's result Harvey Norman's shares are changing hands at approximately 12x earnings (excluding property revaluations).
While this is a reasonably undemanding multiple and Harvey Norman is delivering strong profit growth, I am hesitant to invest at this point.
With retail behemoth Amazon expected to launch in Australia imminently, I would like to wait and see what impact it has on the businesses of Harvey Norman and JB Hi-Fi Limited (ASX: JBH).
So for now, I plan to sit this one out and watch on from the safety of the sidelines.
