But wait, there’s more
The company then reports reported and underlying profit after tax and after non-controlling interests. This number takes into account the silly side bets Gerry Harvey likes to make, such as the disastrous foray into the dairy industry.
On a reported basis, reported profit after tax and non-controlling interests rose 7.3 per cent to $222.7 million. Again, not bad.
The underlying number again strips out the property revaluation boost, which takes you closer to what looks to The Australian Financial Review like the best measure of the performance of Harvey Norman’s core retail business – underlying profit after tax and non-controlling interests. That number edged up just 0.1 per cent to $209.7 million for the December half.
Which, of course, doesn’t look nearly as impressive as Harvey Norman’s preferred measure.
Number nightmare
For the large group of short sellers in this stock, this will be further proof that the business has stalled.
If you’re still awake after this small dystopian nightmare of numbers, you’ll want to look at the split between Harvey Norman and local businesses.
And again, the doubters and boosters will find something they’ll like.
The company’s key headline is that Gerry Harvey’s perseverance with Harvey Norman’s overseas expansion finally appears to be paying dividends.
Another strong performance from the company’s Singapore and Malaysia outposts pushed revenue from Harvey Norman’s offshore businesses through the $1 billion barrier for the first time in a half-year period.
Even more importantly, profit before tax from overseas rose 25.4 per cent to $77.5 million, and now represents 25 per cent more than the group profit before tax.
Gerry has been whacking away at his overseas operations forever, with mixed success. Building an overseas business is never easy, but this is rapidly becoming a strong and reasonably profitable unit.
“Quality performance like this further enhances our brand in the region, and provides a solid foundation for further development in the near future,” Harvey said on Thursday.
But for the short sellers, who hold 9.3 per cent of Harvey Norman stock – a substantial amount given the share registry is tightly held, including by Gerry Harvey himself – the obvious conclusion to draw is that the strength overseas is masking weakness at home.
Franchised sales during the half – the key measure of the Australian business – fell 1.7 per cent to $2.95 billion, with like-for-like sales down 0.6 per cent.
Revenue dip
Earnings from the Australian franchise business fell 5.2 per cent to $158.5 million, which the company blamed on the revenue dip and “a rise in operating expenses of the franchisor to monitor and evaluate compliance with franchise agreements”.
Tactical support payments to assist franchisees fell from $31.7 million in the previous corresponding period to $29.7 million. The franchise operating margin dipped from 5.6 per cent to 5.4 per cent.
It’s also worth noting that the Australian business hasn’t started the June second half very well – total sales dipped 3.2 per cent across January and February, and 2.2 per cent on a like-for-like basis.
It’s hard going at home.
The shorts may also question those property revaluations. The value of the company’s 195 Australian properties rose 4 per cent during the period to $2.48 billion.
In the previous corresponding period, the value of the properties rose 8 per cent, so the rate is coming down. But given that the big retail property trusts have kept valuation growth extremely modest, or even negative, this reporting season, Harvey Norman’s growth of 4 per cent looks somewhat bullish.
The group said 19 of its Australian sites were independently valued.
James Thomson
j.thomson@afr.com
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