Harvey Norman share price jumps to 52-week high on half-year results

A sharp profit decline isn't putting off investors today.

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The Harvey Norman Holdings Limited (ASX: HVN) share price is charging higher on Thursday.

In morning trade, the retailer's shares are up 7% to a 52-week high of $5.06.

This follows the release of the company's half-year results.

Harvey Norman share price hits 52-week high on half-year results

  • Total system sales down 6.8% to $4.64 billion
  • Profit before tax down 29.4% to $303.8 million
  • Fully franked interim dividend down 23% to 10 cents per share
  • Net assets up 1.1% to $4.51 billion

What happened during the half?

For the six months ended 31 December, Harvey Norman reported a 6.8% decline in total system sales to $4.64 billion. This comprises aggregated franchisee sales revenue of $3.16 billion and company-operated sales revenue of $1.48 billion.

Harvey Norman's profit before tax tumbled 29.4% to $303.8 million. This is its lowest profit in four years and was driven by a combination of lower sales and higher costs. A key driver of this profit decline was its Australian franchising operations, which reported segment profit before tax of $143.08 million. This is down 39.8% over the prior corresponding period.

In light of this profit decline, Harvey Norman's board has elected to cut its fully franked interim dividend by 23% to 10 cents per share.

Management commentary

Harvey Norman's chair, Gerry Harvey, commented:

Amid the challenging retail conditions in 1H24, we have continued to deliver sustainable growth in net assets, rising to $4.51 billion as at 31 December 2023, a substantial increase of $1.23 billion since the start of the pandemic, with a 4-year CAGR of 8.3%.

Our balance sheet remains strong with total assets of $7.86 billion, anchored by a $4.14 billion property portfolio. Through efficient working capital management across key segments, we have further improved our liquidity position, with 1H24 delivering strong operating cash flows of $497.31 million at a cash conversion ratio of 135%.

Our low net debt to equity ratio has continued to improve to 10.75% as at 31 December 2023.

Harvey also revealed that the company's global expansion is continuing, which will soon include the UK market. He adds:

We are confident in the quality of the Harvey Norman, Domayne and Joyce Mayne brands and the solid market position of our Australian franchisees and overseas company-operated stores. […] Our strong balance sheet and prudent financial management provides us with the capacity to access additional capital to adapt to evolving business needs.

We remain committed to our Malaysian expansion plan and it is still our intention to grow to 80 stores by the end of 2028. We continue to source suitable locations overseas to strengthen our global footprint, and are excited by the expansion of the brand in the United Kingdom, with the opening of the Harvey Norman Merry Hill flagship store in England later this year.

Outlook

Potentially giving the Harvey Norman share price a boost has been the release of a trading update.

It has revealed an uptick in sales during January, with Australian Franchise sales up 1.3% and all but one region delivering total and comparable sales growth. This bodes well for its second-half performance.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Harvey Norman. 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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