Harvey Norman feeling the pinch: Profit wrap

The economic downturn has hit Harvey Norman, which posted its slowest annual sales growth since the introduction of the GST and will close underperforming stores and review plans to open new stores.

As Australia’s annual reporting season cranks up, SmartCompany will dissect the key profit results in our regular profit wrap.

The economic downturn has hit Harvey Norman, which posted its slowest annual sales growth since the introduction of the GST and will close underperforming stores and review plans to open new stores.

Total sales for 2007-08 increased 8.7% to $5.8 billion, compared to 16.5% growth in 2006-07. Same-store sales growth for the year was 4.4%, compared to 8.6% last year.

The result shows how much pressure the retail sector is under. Big electrical and furniture retailers like JB Hi-Fi and Harvey Norman have tended to outperform smaller retailers in sectors such as clothing. Now the pain is spreading.

Executive chairman Gerry Harvey told The Australian Financial Review that “business is not good at the moment, but I’ve seen it much worse”. But Harvey has warned the retail sector may still sink lower in the coming months.

In other profit news, car dealer AP Eagers posted a 71.3% increase in pre-tax profit for the first six months to 30 June to $28.1 million, thanks to a big $7.1 million refund from the Australian Taxation Office.

But things aren’t all rosy. “This [refund] has substantially offset the more difficult conditions of the last quarter… in the new and used-car markets,” the company said.

Industrial products company Alesco, which make and sells building products and products for the mining, infrastructure, water and medical sectors, posted a 32% increase in profit for the 12 months to 31 May to $58 million.

But it was what the company didn’t say that shocked the market – Alesco broke with tradition and didn’t provide an earnings forecast for 2008-09, warning that uncertainty around the soaring input costs and the economic slowdown would hurt earnings. The company’s shares fell 14% yesterday to $6.75.

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