Harvey Norman’s profits and franchise operating margins fall

Harvey Norman’s net profit after tax fell 16.4 per cent to $375.38 million in FY18, compared to $448.98 million in the previous fiscal year.

The group reported year-end total franchisee sales up by 2.6 per cent to $5.76 billion but the franchising operations segment was down by 7.2 per cent to $282.54 million and the franchise operations margin dropped from 5.42 per cent to 4.90 per cent.

Despite this, the company delivered its second highest underlying profit before tax in the company’s history of $532.54 million, alongside an 8.8 per cent increase on sales revenue to $1.99 billion, up from $1.83 billion in FY17.

Two main factors affected the results: a reduction in the net property revaluation increment for the property portfolio from $108 million in 2017 to $51.65 million, and a loss of $49.44 million in respect to the Coomboona Holdings dairy joint venture.

“The Harvey Norman brand has grown to become a strong global player with solid results achieved by the 89 company-operated stores across seven countries,” Harvey Norman chairman Gerry Harvey said.

“We fully intend to capitalise on this excellent performance overseas, and plan to invest substantially in growing our offshore Harvey Norman store network, particularly in South East Asia,” Harvey said.

There are plans to open 18 new company-operated stores overseas within the next two years, bringing the total store number to 107 by 2020.

Harvey Norman’s flagship strategy will see one premium store in each of the eight countries in which the company, or its franchisees, operate. Each flagship outlet aims to provide tactile, interactive shopping to differentiate it from the online shopping experience.

The company’s overseas company-operated retail locations increased profitability by 15.1 per cent to $116.13 million in FY18, from $100.86 million in FY17.

Retail sales in New Zealand were just under $1 billion in local currency, while sales in Asia were just under $500 million for the 2018 financial year.