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Michael Hill profit hit by staff underpayment, slowing retail market

Michael Hill posted a $16.5 million net profit in FY19, which was impacted by the $4.5 million back-payment it made to employees, after it found that it had unintentionally underpaid workers for the past six years.

Still, this was an improvement form the $1.6 million net profit in FY18, following the closure of its Emma & Roe business.

Total revenue for the international business fell to $569.5 million, compared to $575.5 million during financial year 2018. 

Online sales grew 43.6 per cent to $16 million, up from $11.1 million, while branded collections – driven by Michael Hill’s recent expansion into bridal jewellery – made up 32.5 per cent of total sales.

Chief executive Daniel Bracken said the team was disappointed with the results overall, but pleased with having generated positive sales momentum. 

“2019 was a transitional year for the company,” Bracken said. 

“The pace of change has been intense this year with a greater sense of urgency and determination to deliver, which is really infectious. There is a strong belief in the strategy and each other – and a healthy impatience among us to see results.”

While the business saw revenue growth in Canada of 1.8 per cent to $147.3 million (CA$133.1 million), both the Australian and New Zealand markets saw segment revenues decline.

Australian revenue declined 3.7 per cent to $313.6 million, while New Zealand saw revenue fall to $113. 9 million (NZ$120.1 million) – a 4.1 per cent decrease on FY18.

Michael Hill’s chief financial officer Andrew Lowe said the business believes the retail environment in Australia will continue to be challenging through 2020.

Same-store sales fell 3.3 per cent over FY19, though improved on a quarter by quarter basis over the course of the year – from an 11 per cent decline in Q1 to a 0. 6 per cent increase in Q4.

According to Lowe, this was largely due to the impact of a competitive retail environment, as well as a shift away from heavy discounting.

2020 and beyond

Looking toward the next 12 months, Bracken said the business will focus on the fundamentals of retail and build on the five strategic priorities identified last year: omnichannel retail, customer loyalty, branded collections, brand loyalty and operational excellence.

“Our focus will be on strengthening our customer proposition with new branded product and improved disciplines in buying, selling and marketing,” Bracken said. 

According to Bracken, branded products could reach approximately half of total sales over the next two to three years, and act as an avenue to attract new customers as well as satisfy loyal customers. 

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