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Harvey Norman share price gets a helping hand from competitor’s rosy outlook

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The Harvey Norman Holdings Limited (ASX: HVN) share price has stormed higher today and is currently trading up 7.60%. It seems investors are taking heart from a positive outlook delivered by fellow furniture retailer Nick Scali Limited (ASX: NCK) this morning. Nick Scali reported that trading in July was extremely buoyant, following strong sales orders in May and June. 

Harvey Norman sales 

Harvey Norman reported a surge in Australian franchisee sales in the second half to early June. Sales were up 17.5% as housebound consumers looked to upgrade their home furnishings and appliances. Company-operated stores in overseas jurisdictions were closed for varying periods due to lockdowns, resulting in a mixed performance for the half year to early June. Sales in Ireland were up 17.5% and Malaysia saw sales growth of 12%, but Northern Ireland saw a fall in sales of 8.6% and Singapore sales declined 13.2%. 

Coronavirus impacts dividends 

Harvey Norman cancelled its FY20 interim dividend of 12 cents a share in April due to the uncertainty around the coronavirus pandemic. This resulted in $149.5 million in cash being retained by the business, providing liquidity during the height of the crisis. As restrictions eased, Harvey Norman elected to pay a special dividend of 6 cents per share in June. 

Full-year results 

Harvey Norman is due to report its full-year results at the end of the month. Given its product range of furniture, bedding, home appliances, and electronics, it is reasonable to assume Harvey Norman may have experienced the same strong sales growth as Nick Scali in recent months. Prior to the onset of the pandemic, company-operated retail operations were growing and increasing in profitability. Half year profit, however, was down 4.6% due to the impact of property valuations and the impact of AASB 16 on leases. 

Harvey Norman’s balance sheet is anchored by real property assets which were valued at $2.97 billion at 31 December 2019. The company says its property ownership is its driving point of competitive advantage in the Australian market. Harvey Norman either owns or leases the properties through which its brands trade, and sub-leases them to franchisors. This enables the group to respond swiftly to evolving consumer needs and quickly adapted to changes in retail trends. 

Foolish takeaway

All eyes will be on Harvey Norman when it reports its full-year results. The Harvey Norman share price is now up 63% from its March low, so investors will be expecting to see strong sales and profits. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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