Michael Hill Downsizes USA Operation

I had an uneasy feeling about Michael Hill International [MHI.NZ] moving into the United States in 2008. Not because of the move to the USA but the price paid for the distressed assets that they bought to get a foothold there.

From my piece at the end of 2008:

"I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water".

It has been announced this morning that MHI are closing 8 of the 17 stores they bought from Whitehall Jewelers Holdings to consolidate and grow from this position:

"After a full review of the business, including results achieved to date as well as operational and real estate issues, the company has made the decision to consolidate to a smaller platform of 9 stores, all of which are within the greater Chicago area. These stores will immediately be refurbished to bring all of them up to the company's latest global concept. This group of stores will then give the company the best possible platform and opportunity to position the brand in the US. The remaining 8 stores will be closed at the end of June 2010 with exit terms having been negotiated with the various landlords." Michael Hill Business Review 8/6/10

To be sure MHI bought the stores at a time when retailing in the US was a dead dog and it hasn't improved much since then but the company made a mistake getting into the US so soon and even Michael Hill himself said in a June 2009 interview that he had tripped up in his quest to expand.

A mistake made but good to see the company making a decision to quit and Hill fronting up.

I still feel uneasy about the US and Canadian businesses in the short to medium term but like MHI management remain very optimistic that the model that has made them such a success in Australasia will work in the land of bling and endless shopping malls.

I would have started to business off in Texas though, my favourite State and the home of serious jewelry buyers.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2010

Michael Hill International: Download full Company Analysis

Michael Hill International [MHI.NZ] financial's including a full collection of data out 23 February 2010 courtesy of Aspect Huntley/ASB Securities.

This is a series I will do for the Share Investor Portfolio.

You will find balance sheets, ratios, charts, shareholder returns, 10 year analysis, broker recommendations, substantial shareholders, commentary and company details, forecasts and all the MHI info you could need to make a decision whether to invest or not. Download the full package at Share Investor Forum - you must join to download. It is free and takes less than a minute.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2010

Michael Hill International: 2010 half year profit commentary

The 2010 half year profit for Micheal Hill International [MHI.NZ] out yesterday was a tale with two stories to tell - encouraging and disappointing.

Summary of Key Points

- Underlying profit up more than 65% from $12.7 million to $22.2 million.

- Operating revenue of $244.864m up 7.9% on last year

- Same store sales up 4.5% on last year

- Earnings before interest and tax (EBIT) of $30.329m up 42.3% on last year

- Net profit before tax of $27.542m up 53.9% on last year

- Net profit after tax of $22.299m

- 5 new stores opened during the six months and 2 closed

- Total of 242 stores open at 31 December 2009

- Interim dividend of 1.5 cents per share up from 1.0 cent last year

- NZ stores struggling

- North American stores biting into bottomline

First the disappointing stuff

US stores have tripled their losses to just under US$ 3 million from last year and as I said in my 2009 full year commentary the retail environment in the US isn't going to recover any time soon and it is likely the company will be in for substantial losses. I think there is more bad news to come over the 2010 year on that front.

Michael Hill has said himself that the timing of the US purchase was a mistake (listen to Michael Hill interview - You need to register first) but as he has also said he has always wanted a foothold there, he has it now and holds a long-term view on its future success, as do I but I think it is going to be alot tougher than initially thought.

Michael Hill's Canadian stores have also dropped further back into a small loss on same store sales down by 5%. After adding 3 stores over the last 6 months this division still struggles to make a net profit. Like its cousin further south it continues to drag on the overall results of the company.

New Zealand operations were improved significantly in terms of overall and same store sales but the kicker is that the all important margins were down. Not surprising in this retail environment.

The Encouranging

Underlying profit is up more than 65% from $12.7 million to $22.2 million. Something you cant find on the release but a tax gain of $53 million hides the bottomline.

Australian Michael Hill stores were largely immune from the retail downturn with both an increase in revenue and before tax profit. Margins were very slightly down but Australian stores still defy the downturn of company stores in other geographical areas of operation.

This good news could be coming to and end soon as taxpayer handouts have come to an end (for this time anyway) and much of this welfare money went on spending up large in the retail sector.

Many NZX listed companies have managed their capital well during the credit squeeze and Micheal Hill has been exceptional in this case. Overall company debt is down slightly but an indication that money is being tightly managed is that payables have moved up 36%. Many companies have moved out paying day to day company bills to better manage cashflow during the recession.

The 2009 year was one of the worst years in business for MHI over the last generation. Most of the indicators have been bad and things seem to look more promising but nonetheless a little patchy in 2010, Australia has continued to be an exceptional standout.

MHI management don't make predictions for the future but they do stress things will be tough over the 2010 financial year (well duh!) I will make a prediction though. Life is going to be just as tough this year and their North American stores are going to continue to bleed red ink until consumers decide that this company becomes part of their shopping horizon. A longer time horizon than I at first thought. 5 years plus, rather than the 2-3 that I thought.

My extra shares picked up last year for just this long term play are therefore going to have to wait to appreciate.



MHI shares finished even at NZ$.69c on the news yesterday.


9 .5 for effort, 9 for results.

Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
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MHI profit sparkles

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Buy Toughen Up: What I've Learned About Surviving Tough Times



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c Share Investor 2010

Michael Hill Makeover kicks off

The next step in the Michael Hill International story[MHI.NZ] has happened with the opening of their new format store in Auckland's Queen Street yesterday.

A move towards a more sophisticated look inside and out is designed to take the company towards the higher end of the jewelry market and then hopefully higher margins.

This particular outlet is what the boffins call a "flagship" store and its charcoal and grey colours, along with its new lighting design is designed specifically to get those higher end punters in the door -revamps of retail stores tend to get more punters through the door, not this shopper though.

From Michael Hill himself on the reasons for the change:

“As the original high-end retailer in this part of Queen St, we’re delighted to be delivering a contemporary shopping experience to our customers.

“It’s important to move with the retail environment. As our customers evolve so too must we. This new store design has become the benchmark for all stores going forward, Hill said.



On the purchase his company made last year of bankrupt jewelry retailer Whitehall Jewelers:

"When you're opening in a new market and opening in a place like Chicago that has been particularly depressed you can't just roll out the old thing and expect it to work. It's really when you have to do things that you come up with your best."

Hill has himself said that the Chicago purchase was a mistake (listen to Michael Hill interview - You need to register first ) because of the price paid for it so it is either a very positive move by him to spend millions on the 17 United States stores or throwing good shareholder money after bad - I tend to think he knows what he is doing but having said that the US is a particularly hard market for outsiders to crack. Pumpkin Patch Ltd [PPL.NZ] has also had recent difficulties with its US operations, incurring significant losses, so this is a very tough market, especially in the current economic conditions.

The revamp of the company image comes in a year where underlying 2009 profit has been down by more than 45% and its share price hit because of the overall retail downturn.

Michael Hill shares closed even at NZ 72c yesterday.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss this Topic @ Share Investor Forum


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2009

I'm Buying: I can't resist a Bargain

I couldn't help myself and took the plunge again today. I bought some additional shares, Auckland International Airport [AIA.NZ] and Michael Hill International [MHI.NZ].

I resolved some time back that I would put a ceiling on my share buying but decided that share prices for these two stocks were getting very attractive and know I will regret not buying when they are cheap.

I bought an additional 2000 AIA in April for $1.70 to add to my original long term holding of 1000 and was getting very excited about the stock again in May, so today's low share price was a no brainer

I picked up two small parcels and may get some more if they get cheaper. I added 2000 AIA shares @ NZ$1.51 to my current 3000 holding and picked up 7000 more MHI shares @ 63c to take my total holding of that stock to a nice round 10000.

Here are my reasons for buying MHI and AIA.

I am still in the mood to get additional Sky City Entertainment Group [SKC.NZ] but think they could get cheaper still, finishing up 5c to $2.63 today and looking at Freightways Ltd [FRE.NZ] to dip below the $2.44 mark before taking the plunge there.

I am as pleased as punch at my shiny new purchases.


Michael Hill International @ Share Investor Blog

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MICHAEL HILL - Toughen Up: What I've Learned About Surviving the Tough Times
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Why did you buy that stock? [Michael Hill International]
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MHI profit sparkles

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Auckland International Airport @ Share Investor Blog

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c Share Investor 2009

MICHAEL HILL - Toughen Up: What I've Learned About Surviving Tough Times

I have been taking an increasing interest in Michael Hill the man and the Jewelry company that he runs over the last few weeks.

I picked his company Michael Hill International [MHI.NZ] as Stock of the Week this week and covered off an interview with him on TV3's 60 minutes aired last Monday.

His high profile in the media in the last week has been mainly due to a book of his, Toughen Up: What I've Learned About Surviving Tough Times that was launched today .

I received an advanced copy of the book and have read just a brief part of the first chapter.

Suffice to say it sounds like Michael from the get go (it has his "voice") - positive to the point of being unfashionably earnest and eager to tell his story to the rest of us.

As I pointed out in my comments about his TV3 interview and of course gaining much about the content of his book from the title, this book is not only revelation to today's economic condition's but also timeless in its old-fashioned approach to business and indeed life in general.

Hill sees our current economic valley as an opportunity to change, move forward and above all grow business and our economic livelihood in the process.

From the press release for the book:

Michael Hill believes the looming meltdown can be a good thing for businesses and entrepreneurs. It is possible to succeed in a downturn - in fact it is the perfect situation in which to perfect a business. Instead of fearing the side-effects of recession, wallowing in gloom and convincing ourselves the only safe haven is at home under the blankets, entrepreneurs can use this period to their advantage. With the right attitude, you can not only survive, but emerge from the crunch with a new feeling of prosperity and strength.

Over the years, Michael Hill has had just about every possible experience in business: from lie-awake-at-night nerves to the joy of unexpected success. He's reshaped the landscape under his feet and he has ventured into new territory. And at every moment, he has relished the excitement of it all. Once, he was an outsider in his industry; the cheeky startup whom nobody expected to succeed. The established players had no reason to view him as a threat. Now, his business is the establishment. It dominates the markets in which it operates. Michael Hill Jeweller is a respected part of the business culture in a large part of the world - and they are continuing to expand in both size and ambition.

Plain sailing through a business storm encapsulates the ingredients of Michael's philosophy. There are no secret herbs and spices. It is not a magic recipe - it is just a collection of solid ideas, firmly grounded in reality. All these concepts are remarkable only because they make common-sense - but you'd be amazed how rarely they are fully understood and embraced in the business world. Michael Hill believes the looming meltdown can be a good thing for businesses and entrepreneurs. It is possible to succeed in a downturn - in fact it is the perfect situation in which to perfect a business. Instead of fearing the side-effects of recession, wallowing in gloom and convincing ourselves the only safe haven is at home under the blankets, entrepreneurs can use this period to their advantage.

With the right attitude, you can not only survive, but emerge from the crunch with a new feeling of prosperity and strength. Over the years, Michael Hill has had just about every possible experience in business: from lie-awake-at-night nerves to the joy of unexpected success. He's reshaped the landscape under his feet and he has ventured into new territory. And at every moment, he has relished the excitement of it all. Once, he was an outsider in his industry; the cheeky startup whom nobody expected to succeed. The established players had no reason to view him as a threat. Now, his business is the establishment. It dominates the markets in which it operates. Michael Hill Jeweller is a respected part of the business culture in a large part of the world - and they are continuing to expand in both size and ambition. Plain sailing through a business storm encapsulates the ingredients of Michael's philosophy. There are no secret herbs and spices. It is not a magic recipe - it is just a collection of solid ideas, firmly grounded in reality. All these concepts are remarkable only because they make common-sense - but you'd be amazed how rarely they are fully understood and embraced in the business world.

I imagine this book is not just for those who are in business or have an interest in business but can be used as an inspiration by those who would like to get motivated, learn from someone who has been there and done that and made all the mistakes along the way and would like to put their ideas into action.

Like Michael, I would say all it takes is an idea - it doesn't even have to be a spectacularly bright one - very hard work and the tenacity to stick with if it is successful and know when to fold if it isn't.

Highly recommended. *

* just a wee footnote, a correspondent quite rightly pointed out in a comment below that how can I recommend a book if I haven't finished it and of course without explanation he is right. I answered thus:

CJ, what I should have said is that from what I have read and skimming over other parts of it I would recommend it-and I do -you know sometimes you start reading a book and you know it is going to be good. I have similar old-fashioned values and share much of his outlook on life, so I know I am going to enjoy the read.

I will of course finish it at some stage, and tell you if it disappoints. I doubt it will.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Long Term View: Michael Hill International Ltd
Michael Hill Downsizes USA Operation
Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz



c Share Investor 2009

Stock of the Week: Michael Hill International

In this Stock of the Week I am going to look at the multinational Jewelry retailer Michael Hill International [MHI.NZX]

Like every other business and especially retailers, Michael Hill is suffering somewhat from the economic downturn, its results to 31/12/08 that, but this company has a long history of good returns to shareholders and spectacular revenue and profit growth and the drop in profit will not last forever.

Over the last year or so the company has shifted its direction from a pure jewelry discounter to a more upmarket player, with its own branded watches and a range of luxury branded products, starting with Michael Hill Perfume.

Expansion from its present base of over 230 stores is on the cards with a goal of 1000 stores by 2020, the bulk of them being in North America, which kicked off in Canada a few years ago and entered mainland America at the end of 2008 when MHI purchased 17 stores in Illinois and Missouri from Whitehall Jewelers who were in Chapter 11 Bankruptcy.

Of course this is risky, there are many retailers that have washed up on the retail rocks in the land of the free because of unwise and unsustainable expansion, many of them in 2009, but Michael Hill's (the man and the company) expansion strategy up till now has been carefully calculated every step of the way and so far has paid off.

Canada has proven a tough nut to crack thus far but prospects were improving until the recession hit late 2008.

Michael Hill (the man) thinks this is a perfect time to expand and I am with him there - cheaper start-up costs makes for a good base to grow from and gives leeway to get through the tough times.

Which brings me to the share price. The stock hit a low of 45c earlier this year but has risen up to 69c market close on Friday. The stock has been as high as $1.25.

I am looking at buying more on share price dips, and they will come.

Good Luck!



Stock of the Week Series

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Michael Hill International @ Share Investor

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Michael Hill International Ltd: 2010 Full Year Profit Analysis
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Michael Hill International: 2010 half year profit commentary
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Toughen Up: What I have learned from the hard times
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Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
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c Share Investor 2009

Michael Hill TV3 60 Minutes Interview

I just watched the Michael Hill interview on TV3's 60 Minutes.

I know little about the man but the usual stuff: he bought his first Jewelry shop in the late 1970s when his house burned down. He was 43.

Along the way he wrote down his goals that he would have x number of Michael Hill International [MHI.NZX] stores by a particular date. He has achieved every goal he set in that respect and now has well over 200 stores in New Zealand, Australia, Canada and from late last year the USA.

His future goal is to have 1000 stores by 2020, with the bulk of them being in the United States.

His recipe to get there is to brand himself and his company as "desirable" brand that everyone would want -a tough proposition in these tough times considering that other luxury brands are floundering with sales drops of up to 50%.

The image change has started in Australasia, with flash new stores that sell cut price jewelry as they traditionally have but alongside that higher end bling and Michael Hill branded watches and his own perfume line.

He seems very excited about current economic conditions, seeing it a an opportunity rather than a curse. The opportunity is, as he sees it, is that these dire conditions will allow him to reach his goal of 1000 stores just that much sooner, and cheaper.

I think he is going to get there.




Michael Hill International @ Share Investor

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Stock of the Week: Michael Hill International
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c Share Investor 2009

Whats on Rod Duke's shopping list?

So Rod Duke and his Briscoe Group [BGR.NZ] have again expressed an interest in buying retailers in New Zealand.

I wrote a few months back about Duke's great pile of cash and it seems he has ideas burning a whole in his wallet as well.

He has been buying up a bigger share of Pumpkin Patch for his personal portfolio over the last year or so as the share price got cheaper but just what the hell has he got his eyes on?

He has NZ$62 million cash to play with.

Let me have a bit of a stab in the dark and tell you why.

Please keep in mind that I own shares in a large number of listed New Zealand retailers!


My Shopping List

Briscoe Group [BGR.NZ] The stock price is low, the company doing well and has no debt. Why wouldn't you buy back shares in your own company while they are low. Pumpkin Patch has been doing just that.

Pumpkin Patch Ltd [PPL.NZ] Duke already has a 10% stake in this company and so does a potential competitor of his for retail buys, Jan Cameron. Nevertheless he has built up his personal stake over time and it would be a coup to be able to manage this prestigious international brand.

Postie Plus Group [PPG.NZ] Struggling a bit in the past, they are doing allot better over recent times with higher sales and better margins. Their very low share price makes them a target for takeover and at less than NZ$15 million market cap Duke could swallow this company whole without batting an eyelid. They have a retail brand in Baby City that would be quite attractive to any retailer. The only major stumbling block is that Jan Cameron, the wiz retailer, who loves to buy distressed retailers owns 15% of the company.

Tasman Pacific Food Group The owner operator of Burger King in New Zealand and Australia, it has been struggling for years under competition from McDonald's and recently sold off its Hell Pizza brand for a loss. Vulnerable to a decent bid.

Burger Fuel WorldWide [BFW.NZ] A gourmet burger maker with 30 or so outlets, its NZ$16 million odd market cap makes it vulnerable. It has never made money and will continue to struggle to do so. Sales are suffering in the current recession. It will need additional capital to continue and a cornerstone shareholder such as Duke would be perfect.

Hallenstein Glasson Group [HLG.NZ] Like any retailer Hallenstein Glasson is suffering lower sales and lower margins. It is doing better than most clothing retailers but is vulnerable over the slow winter sales period.

Michael Hill International [MHI.NZ] This well run jewelry chain with over 200 outlets in 4 different markets is suffering a downturn from shoppers shunning discretionary sales and its share price is vulnerably low. There are many other Jewelry chains of various sizes in New Zealand that are similarly good targets for Duke's cash pot.

The electronics sector is going to consolidate during this year or next. Every retailer in that sector is suffering extremely badly and various chains are going to go to the wall in the next year or two.

Bad retailers who have high debt, high stock levels, poor locations and high operating costs are going to come under pressure the most. Even good retailers will be vulnerable if the retail slowdown continues for any great length.

Duke's advantage now comes because he and his Briscoe Group first had no debt and then reacted to the recession about a year ago by running down inventories and cutting those aforementioned and all important operating costs- it also helps that his stores are not inside Westfield Malls, they charge very high rents!

This gives him a big advantage over retailers like MHI, HLG, The Warehouse Group [WHS.NZ] and many other retailers Duke might have his eyes on because it is a major cost for any retailer and is often the difference between retail life and death.

I cant wait to see what will be in his shopping trolley.


Disc I own BGR, WHS, PPG, PPL, HLG and MHI shares


Briscoe Group @ Share Investor

Briscoe's Cash worth looking at
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c Share Investor 2009