LA Private

Harvey Norman reveals 10% share buyback plan amid weak September sales

Harvey Norman (ASX:HVN) has unveiled a surprising plan for a 10% share buyback worth $442 million over the next year. This move comes in response to dismal September quarter sales and a grim outlook for the future.

During the September quarter, sales plummeted by over 98% across the company’s empire, with a staggering 13% drop in Australia. Unaudited pre-tax earnings for the same period were halved, potentially marking one of the worst performances in the industry, both for the quarter and the six months leading up to December.

Harvey Norman reported a 9.1% decline in aggregated sales from most of its chains, and the key comparable store measure showed an even worse 10% drop. Preliminary unaudited accounts for the period from July 1, 2023, to September 30, 2023, indicated a profit before tax decrease of approximately -49.1% compared to the same period in the previous year.

The company emphasised that this information is not intended as earnings guidance since it does not provide such guidance.

Harvey Norman’s sales performance was worse than that of rivals like JB Hi Fi and significantly lagged behind Super Retail, Coles, and Woolworths. JB Hi Fi’s The Good Guys also experienced a sales slump of 12.2%.

The most severe decline occurred in Australia, where franchisee sales dropped by 13.6% in the quarter on a headline basis and 13.9% on a comparable store basis. New Zealand saw a 1.6% slump in headline sales and a 3.3% drop in comparable store sales, while Slovenia and Croatia reported a 1.6% rise in headline sales due to additional stores, but comparable store sales fell by more than 5%.

In Malaysia, where Harvey Norman opened three more stores during the quarter, headline sales remained steady, but comparable (same store) sales fell by 8.4%. However, there were some bright spots, as Irish stores saw a 13.7% jump in headline sales and a 12.8% increase in comparable store sales. The small Singapore operation also experienced a 6.9% rise in headline sales and a 7.7% increase in comparable store sales.

Regarding the share buyback, Harvey Norman clarified that it may or may not buy all 10% of the company’s shares over the next 12 months. The buyback will be conducted opportunistically to support the share price and will depend on various factors, including market conditions and the company’s prevailing share price. The company reserved the right to suspend or terminate the buyback at any time.

Notably, the statement did not specify whether the company’s chair, Gerry Harvey, and CEO (his wife), Katie Page, would participate in the buyback. Macquarie Group Limited has been appointed to manage the buyback of up to 124,600,665 shares.

The decision for a share buyback, rather than the sales figures, reveals Harvey Norman’s cautious outlook for the company and the retail industry. This suggests that market valuations for retailers may be too high, especially in light of recent developments, even for major players like Woolworths and Coles. Woolworths, in particular, faces added risk due to its ownership of the underperforming Big W.

Using shareholder funds for a share buyback, as a form of capital management, is not uncommon. Seven West Media and News Corp have employed similar strategies in the past to stabilise their share prices. Gerry Harvey controls nearly 34% of Harvey Norman, and his wife also holds a significant stake. If they feel the need to protect their investment by supporting the share price, it serves as a potential warning for other investors, especially in the retail sector.