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Harvey Norman shares rise despite decline in 2022-23 results

Harvey Norman (ASX:HVN) saw a 2.6% increase in its shares on Thursday as investors breathed a sigh of relief that the 2022-23 financial results were not as dire as anticipated by the market.

The company’s shares experienced a boost amid market digestion of a 33% decline in profit, coupled with a 3.8% fall in revenue. Moreover, a significant 33% drop in the full-year dividend followed, with the final dividend being reduced to 12 cents per share.

For the twelve months ending in June, Harvey Norman reported revenue of $9.12 billion, marking a decrease of 3.8%. This dip in revenue was reflected in aggregated headline franchisee sales of $6.42 billion and company-operated store sales of $2.78 billion. Total revenue across all business segments for the year amounted to $4.28 billion, down $230.46 million or 5.1% due to being “off a high base last year.”

Revenues from franchisees experienced a 10% drop, amounting to $130.00 million, driven by a 4.9% fall in aggregated revenues to $6.42 billion in FY23. Company-operated sales revenue also witnessed a decline of $31.26 million or 1.1%, while other income items tumbled by $69.20 million or 17.4%, primarily attributed to a substantial 44% reduction in the net property revaluation increment by $94.93 million.

EBITDA dropped by 215 to $1.130 billion, profit before tax fell 28% to $680 million, and net profit after tax settled at approximately $540 million, marking a nearly 34% decrease.

Harvey Norman had previously revised its earnings projections in June, anticipating a pre-tax profit ranging between $637 million and $703 million.

The full-year dividend saw a reduction to 25 cents per share, down from 35 cents in 2022 and 33 cents in 2019.

The company faced an 8.1% increase in costs throughout the year, attributed to lower costs in the previous year due to COVID-19 restrictions. Despite this, total operating expenses as a percentage of total system sales revenue stood at 17.68%, comparable to pre-pandemic levels.

The decline in sales coupled with rising costs resulted in squeezed profit margins, a trend evident in the reported profit and loss figures.

Gerry Harvey, the chair of the company, acknowledged the challenging economic conditions and living cost pressures, noting that the balance sheet remains strong, anchored by a substantial property portfolio. He highlighted the company’s resilience in the face of macroeconomic challenges and its ability to manage financial resources efficiently.

No guidance has been provided for FY 2024, but the management provided an update on sales until the end of July, showing sales were down across most regions, with Australia experiencing one of the largest declines in franchisee sales and comparable store sales. However, Malaysia posted positive sales growth due to the opening of new stores.

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