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Is the Harvey Norman share price a buy after today’s half year results?

The Harvey Norman Holdings Limited (ASX: HVN) share price is flat on Thursday after the release of the retailer’s half year results.

What happened in the first half?

For the six months to December 31, Harvey Norman achieved total sales revenue of $4 billion. This was an increase of 1.6% on the prior corresponding period and driven largely by strong sales from its offshore businesses.

Offshore company-operated Harvey Norman retail sales revenue grew 12.4% on the prior corresponding period to $1.05 billion. This offset a 1.7% decline in aggregated headline franchise sales revenue to $2.95 billion.

Franchise sales were impacted by moderation in discretionary retail sales during the peak festive periods, softer post-Christmas sales, increased competition, and aggressive pricing to maintain market share.

On the bottom line the retailer posted a net profit after tax of $222.77 million, up 7.3% on the prior corresponding period. On a per share basis, earnings grew 6.4% to 19.55 cents.

What were the drivers of the result?

Its offshore businesses were the drivers of its profit growth during the period. Total overseas retail profit jumped 25.4% to $77.5 million.

The catalyst for this was the strong performance of each of its overseas Flagship stores. These stores have pushed market share gains and elevated its brand name, “leading to an increase in brand awareness and consumer traction to existing stores in the region.”

Harvey Norman Chairman, Gerry Harvey said: “The last six months have seen outstanding results from our stores in Singapore and Malaysia, building on the growth we’d already experienced in the region and really delivering in an impressive manner. We’ve found this region to be a very fertile testing-ground for taking new ideas to market, both in retail presentation and proof-of-concept. Quality performance like this further enhances our brand in the region, and provides a solid foundation for further development in the near future.”

Its profits were also given a boost from net property revaluations. The revaluations contributed $36.6 million to the company’s profit before tax.

The Harvey Norman board has declared an interim fully franked dividend of 12 cents per share, which is flat year on year.

Trading update.

Management provided a trading update for the first eight weeks of the second half which revealed that its overseas businesses have continued to deliver solid sales growth. Unfortunately, the same cannot be said for its Australian franchisee sales which are down 3.2% on the prior corresponding period. This has been blamed on the timing of promotional periods.

Should you invest?

I thought this was a reasonably solid result from Harvey Norman thanks largely to its offshore operations.

But I haven’t seen enough in it to make me want to invest at this stage. And with management advising the Australian sales have continued to slide, I’d consider staying away from rival JB Hi-Fi Limited (ASX: JBH) as well.

Instead, I would be a buyer of retail shares such as Accent Group Ltd (ASX: AX1) or Super Retail Group Ltd (ASX: SUL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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