LA Private

Harvey Norman forecasts profit slump amid impending retail recession

Retailer Harvey Norman, led by billionaire Gerry Harvey, has issued a warning of a significant drop in annual earnings for 2023. The company expects a decline of around 30% as consumer sales wane.

Harvey Norman, a renowned consumer electronics, bedding, furniture, and whitegoods retailer, released a trading update on Wednesday. Based on trading performance over the past 11 months, the company indicated that its full-year profit before tax and non-controlling interests, excluding net property revaluations for fiscal 2023, is expected to be within a range of up to or down 5% of $670 million.

“This is down sharply from earnings of $942.8 million posted for 2022,” the company stated.

While specific sales figures were not provided in the disclosure, Gerry Harvey, the chairman of Harvey Norman, acknowledged a noticeable decline in sales across his stores, coinciding with the recent rise in interest rates.

“Some stores, yes sales are down, other stores no, and so across the board, yes, there has been a weakening in sales and a weakening in foot traffic, but that is probably for every retailer,” Harvey said.

Harvey Norman’s various product categories have been impacted, with bathroom products being an exception, as they have held up strongly amidst the downturn.

“There is no question it is having an effect, but I have lived through higher interest rates, these are low in comparison,” Harvey noted. “I think with interest rates there is no certainty they won’t go up another 1, 2, 3 per cent, and if that happens, how will we go?”

Despite the challenging environment, Harvey expressed his optimism about the likelihood of a recession in Australia, estimating the chances to be around 1 in 10. He emphasised that sustained high unemployment levels would be a crucial factor for a recession to materialise, suggesting that Australia’s current employment situation does not align with the conditions typically associated with a recession.

“I think it could happen, but while you have got unemployment levels where they are, how the hell do you have a recession? And if you have a recession, it will be like the one in New Zealand, not like a real recession,” Harvey explained.

Harvey expressed his frustration over the impact of the pandemic on Harvey Norman’s business, disrupting the positive earnings momentum the company had previously enjoyed.

“It’s like a horse race, your horse has got to have that momentum and then this bloody thing comes along called a pandemic, and you close, then you’re open, and your sales go through the roof, and then you have no sales and then all your staff and the people running your store are affected,” Harvey lamented.

Looking ahead, Harvey highlighted the need to rebuild the company’s momentum and work towards achieving a pretax profit of $1 billion.

“In a way, we have to now got to start again in many ways and start working back towards profit to $1bn before tax, that is where we are heading,” he said.

The projected 30% decline in earnings for Harvey Norman serves as a reminder of the challenges faced by retailers in the current economic landscape. As consumer sales retreat and interest rates fluctuate, businesses must carefully strategise and adjust their operations to maintain profitability and sustain growth.