Gerry Harvey must be laughing this morning at the ease with which he spun a poor sales result to the media and investment analysts yesterday.

He released a statement yesterday saying that group sales rose 10.6% in the year to June, which sent the company’s shares up 10c to $2.62 from Wednesday, and to an intra day high of $2.70.

But did journalists and analysts do their homework by looking back to the same statement issued for the 2004 year? Last year Harvey Norman released figures for all sales, including the loss-making operation in Singapore, which were up 15.6% in the year to June 2004. Now that’s a very sharp slowdown in growth, and while 10.6% seems impressive there’s another measurement that investors and others failed to check – same store sales growth.

That’s the best guide to how a retailer is travelling and Harvey Norman says its same store sales grew by 5.3% in the last year, compared with 9.9% in 2004. Eleven stores have opened in the last 12 months, compared with 16 in 2004, another sign of the growing pressures on the company.

By every measurement, Harvey Norman’s impressive growth rates of the past are off the boil and slowing fast, which is the point of some analyst briefing notes to clients this past week. The slow down in store openings in Australia means one of the primary drivers of topline sales growth is not going to be there with the same force this year.

So Gerry’s trying to boost returns by screwing more money out of suppliers and franchisees. But you’d never have realised that from the way the market took the news yesterday. Gerry is pressuring suppliers to lift their rebates to the company, and pressuring franchisees to lift their floor selling prices by a reported 15%.

Because his franchisee fees are based on gross sales revenues (as well as the millions he extracts in cooperative marketing fees), Gerry is trying to boost the main source of income to Harvey Norman.

These sales figures are gross and include income from the franchisees. Harvey Norman’s real income is the franchisee and other fees in Australia plus the $600-700 million in sales from the company-owned stores in New Zealand, Singapore, Slovenia and Ireland.

That will not be out until the results are released and will provide a better indicator of how the company has gone in 2005.

Peter Fray

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