Jewellery retailer Michael Hill International Ltd (ASX: MHJ) recently delivered a solid profit result for the first half, sending its shares to a fresh 12-month high.
But the team at Jarden has run the ruler over the results and thinks that if the company continues to execute well, the shares could lock in even more gains.
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Solid earnings increase
Firstly, let's look at the profit result. Michael Hill reported group sales of $371 million, up 3% on the previous corresponding period, but comparable EBIT was up 28.6% to $31 million. Net profit was up 32% to $22.3 million.
The company's gross margin was steady at 61.2%, with increases in the gold and silver price offset by "overall product mix and focused promotional activity".
And the company's net cash position was $20.7 million, $30.5 million better than for the previous period.
Michael Hill did not declare a dividend but indicated that the board did intend to pay a full-year dividend, "subject to current trading conditions continuing and in line with the company's dividend policy''.
And, encouragingly, same-store sales for the group for the first eight weeks of the current half were up 6% on the previous corresponding period.
Michael Hill Chief Executive Officer Jonathan Wecker said regarding the results:
Since joining the business in August, I have spent most of my time in stores and with our teams and customers. The feedback was consistent, that when we simplify how we operate, stay close to the customer and focus on retail fundamentals, performance improves. Over the half, we acted on that by tightening our product focus, improving our go-to-market, clarifying expectations in stores, and improving how we communicate across our teams. Momentum built through the Christmas trading period, and we saw that come through in stronger sales and improved comparable EBIT. This consistent customer-centric focus has also delivered organic growth across the network, resulting in a broader customer base choosing Michael Hill. Pleasingly, positive sales performance has continued into the first eight weeks of the second half, with group same store sales up 6%.
Shares looking cheap
The Jarden team analysed the first-half results for the ASX retail company and said the uptick in same-store sales was a sign of a shift in momentum.
They added:
The improvement in sales momentum is now evident across multiple periods in all markets and is an encouraging sign of: 1) a healthier operating backdrop; and 2) the brand refresh ⁄ product innovations resonating with customers.
Jarden said they had increased their forecast for full-year earnings at Michael Hill by 21%, "driven by better-than-expected contributions in Canada and Australia''.
Jarden has lifted its 12-month price target on the shares from NZ$0.70 to NZ$0.80, which would be a 50.3% return including expected dividends.
Michael Hill's Australian shares were last trading at 46 cents, not far off their 12-month high of 47.5 cents.
