The Michael Hill International Ltd (ASX: MHJ) share price could be on the move on Thursday after the jewellery retailer provided a trading update.
What was in the update?
According to the release, the company's performance continued to improve in the fourth quarter of FY 2019.
During the quarter Michael Hill's same store sales were roughly flat at +0.1% and total sales were down by 0.8% on the prior corresponding period.
Whilst this wouldn't ordinarily be anything to get excited about, it is a massive improvement on the prior quarters. Same store sales were down 11% in the first quarter, down 2.9% in the second quarter, and down 1.5% in the third quarter.
Management believes that its fourth quarter performance demonstrates that the contraction in FY 2019 sales has stabilised. It also notes that cumulative same store sales have continued to recover throughout the year.
One driver of this positive form was its active inventory management program. Management advised that a deliberate focus to reduce inventory has seen improved working capital and a cleansing of aged or off-range stock. Whilst this has had some impact on its gross margin, it has also allowed the introduction of "newness" in the retail operating model on a monthly basis.
Another driver has been strong e-commerce sales growth. For the full year the company posted $16 million of e-commerce sales, which was 43.6% higher than the prior year. However, at 2.8% of total sales, it is still only a very small part of the business.
A final catalyst was the company's focus on portfolio management. Michael Hill opened 10 new stores and closed 11 under-performing stores over the period. This leaves the company with a total of 306 stores operating today.
Michael Hill's CEO, Daniel Bracken, said: "Even though we are experiencing an extremely competitive retail environment, particularly in Australia, with intensive competitor clearance related activities and lower foot traffic, the company has continued to deliver improved sales momentum for the fourth quarter."
Mr Bracken appears confident that the company can build on this in FY 2020.
He added: "To deliver our Q4 sales result, and remain competitive, we did experience margin compression in the quarter. While we have seen some of our competitors responding with deep discounting and store closures, Michael Hill is now well positioned as we head into FY20.
As our strategic initiatives and customer-led retail operating model continue to unfold, and with a full-strength leadership team now in place, I am excited by the year ahead, and our ability to grow market share."
This news will have come as a relief to shareholders. Due to its shocking form early in the year, Michael Hill's shares have been one of the worst performers in the retail sector over the last 12 months along with Adairs Ltd (ASX: ADH) and BWX Ltd (ASX: BWX).
