The Michael Hill International Ltd (ASX: MHJ) share price could be on the move this morning following the release of its first quarter update.
How did Michael Hill perform in the first quarter?
The jewellery retailer has had a strong start to FY 2020. For the three months to September 29, Michael Hill reported a 9.7% increase in sales to $124 million. This was driven by an impressive 11.9% increase in group same store sales.
The company's biggest contributor to revenue is its Australian segment. Pleasingly, it performed well despite challenging trading conditions caused by widespread discounting as competitors fight to maintain market share.
The Australian segment recorded same store sales growth of 6.8% and total sales growth of 2.3%. Three underperforming stores were closed during the quarter, leaving a total of 165 stores in the country.
The New Zealand segment was a strong performer. It achieved same stores sales growth of 10.1% and all stores sales growth of 11.8%. Management believes this positive result in its most mature segment reflects the strength of the Michael Hill brand.
Finally, the company's Canadian segment reported a 16.4% increase in same store sales for the quarter. All stores sales rose 17.6% over the prior corresponding period thanks to the Canadian productivity strategy.
One negative, however, was that margin compression has continued. Management advised that gross margin pressure has started to alleviate, but margins have not yet recovered to historic levels.
CEO Daniel Bracken said: "The uplift in sales performance for the quarter is encouraging and we are pleased to see our New Zealand and Canadian segments outperforming FY19Q1 so positively – These segments contribute to more than 40% of our Group revenue and profit. The lift in Australian sales is also promising given the challenging retail environment."
"These first quarter results are a strong foundation as we enter the all-important Christmas trading period. Our leadership team have been working hard to develop new ways of maintaining and growing our customer base with many initiatives to be released over the remainder of the financial year," he concluded.
Should you invest?
Whilst I thought this was a solid quarter from Michael Hill, it is hard to make an investment decision without knowing how profitable these sales were. In light of this, I would hold off an investment until the retailer releases its half year results and all will be revealed.
In the meantime, retailers such as Kogan.com Ltd (ASX: KGN) and Super Retail Group Ltd (ASX: SUL) could be great alternatives.
