Harvey Norman’s profits plunge but Gerry Harvey is still talking the talk

Harvey Norman’s half-yearly results released yesterday recorded a 36.5% fall in the retailer’s net profit to $81.9 million to December 31 but chairman Gerry Harvey is still talking up the business.

Excluding the effect of new stores and store closures, Harvey Norman’s sales in the period dropped by 5.3% and the retailer was forced to increase tactical support to franchisees by $18.5 million to $68.3 million to keep struggling stores afloat.

Harvey was keen to focus instead on the retailer’s 4.1% jump in overall sales across Australia in January, with global sales up 3.8%.

”Consumer confidence levels have risen recently and, because of that, you’ve now got weekly sales in January and February exceeding last year,” Harvey said.

”For the first time in a very long time, we now have sales that are up. That’s lifted the morale here somewhat.”

Harvey said he expects margin pressures to ease as more retailers shut up shop due to tough trading conditions and he wants Harvey Norman to be the “last man standing” in consumer electronics and whitegoods.

”You’ve had so many retailers go out of business in the last couple of years and there’s probably more to go,” he said.

Asked what he planned to do to sustain the positive figures, Harvey said: “Pray. It might have more effect than anything else”.

Shares in Harvey Norman rose 21¢, or 9.21%, to $2.49 on Thursday on the basis of the January figures.

But David Gordon, executive director of corporate advisory at Bentleys in Melbourne, told SmartCompany Harvey’s focus on one month was not a true indication of Harvey Norman’s performance.

“He’s talking up January, he’s talking up the fact his assets are up, everybody knows Harvey Norman’s property base is a strong asset, but the business is underpinned by the future cashflow,” Gordon says.

Gordon is concerned about a lack of innovation internally at the retailer.

“Harvey Norman seems to be focusing on aligning its costs and inventory to changes in demand, it also seems to be dependent on improvement in the macro economic situation and in category innovation which will come from its suppliers,” he says.

“This seems to be a reactive approach and not the proactive approach one would expect from a retailer with the experience and capabilities of Harvey Norman. That’s of course easier said than done but in my mind Harvey Norman is a corporate retailer waiting, as corporates do, for something else to fix its demand problems.”

While Harvey famously told SmartCompany back in 2008 that online retailing “is a complete waste of time”, Gordon says Harvey Norman’s omni-channel strategy is one bright spot for the retailer.

“Harvey Norman’s internet site is finally almost there and it is certainly more effective and comprehensive than most of their competitors’ sites,” he says.