Sunday, February 24, 2008

Michael Hill's profit shines

Results for Michael Hill International(MHI) were expected by the market as they were telegraphed a few weeks back but it is pleasing to see the breakdown.
Under Michael Hills careful
management his company looks
set for a good long term future.

I have been a long term follower of this company and have only admired it from a distance, having bought a very small holding late last year I am very pleased that I did.

Key figures:

* Operating revenue of $209.191m up 4.8%
* EBIT of $30.799m up 27.8%
* Net profit after tax of $19.480m up 27.1%
* 19 new stores opened during the six months
* Total of 210 stores open at 31 December 2007

Full profit rundown from NZX

Australia and Canada performed well over the last 6 months but New Zealand stores were flat, reflecting the poor economic conditions that we are currently facing. Business is likely to be tough in New Zealand for the lead up to the General Election at the end of the year and tax cuts offered by National are likely to stimulate the retail sector at the start of 2009.

Australia clearly has much more store growth to come, their current 136 stores vs the New Zealand store count of 52 would equate to roughly 250 stores when you figure OZ has five times the population that NZ has. Even store growth in Auckland is likely to be added to as its citizens need approx 30,000 ft of new retail space very year just to accommodate population growth.

Canada has the most fascination with me though. It has grown stongly in revenue over the last 6 months and doubled their operating profit on a base of 22 stores.

Their apparent success here, after just a few years, makes this market one to watch closely for the future direction of the company as a whole. Not just for profits that should come from the Canadians though.

I'm highly interested in their eventual push further south, into the clutches of the US consumer.

This market will be MHI's toughest one yet and if successful will clearly make the company a true global player, something the man, Michael Hill, has had designs on for many years.

The route the company is taking into the USA differs from that of another prospective Kiwi global player, Pumpkin Patch Ltd(PPL), Pumpkin opened in the US first, while MHI's strategy of entering a smaller, similar market seems to be a wiser move in my mind, less short term risk but a bigger long-term payoff.

It will be interesting to see where Michael Hill International will be in 10 years, last weeks profit announcement and associated figures make the possibility of global success in the long term an attainable goal.

Disclosure: I own MHI shares

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MHI has defined growth strategy
MHI profit sparkles
Pumpkin's expansion comes at a cost

c Share Investor 2008

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