Most Challenging Year: Harvey’s Profit Tumbles 32%

‘Most challenging year ever’: Harvey Norman net profit tumbles 32%
Harvey Norman just announced a massive 31.6% slump in net profit after tax to $172.47 million for the year ending 30 June 2012.

This marked a decrease of $79.78 m compared with $252.26m NPAT recorded in FY2011.

2012 was “the most challenging year due to unprecedented price and margin deflation in our television and devices categories,” Harvey Norman Chairman Gerry  Harvey said in a statement today.

Earlier this month, Harvey Norman announced sales slump of 8% FY12 with every quarter but the first showing a fall in sales of almost 10%.

Harvey blamed “a glut of products sold at never before seen prices” flooding the market following the demise of retailers WOW Sight and Sound, Retravision and Dick Smith’s restructure.

However, the CEO of JB HiFi, Terry Smart, said his company, whose net profit  fell 5% to $104.6m this year, had not been impacted as much as Harvey Norman claims stock dumped into the market contributed to its profit slide.

The big question is how much marketshare erosion has there been at Harvey’s as this loss could have contributed to a profit slide.

Harvey’s however reported good growth in the mining areas of Western Australia, Queensland and the Hunter Valley, New South Wales.

However, the CE retailer is still holding out for similar growth in Sydney, Melbourne and Brisbane which “are not yet seeing the flow-on effects of the mining boom but our franchisees are well-placed when that happens.”

Mr Harvey  said its diversified retail, franchise, and property portfolio valued at over $2bn enabled it adapt to the changing retail landscape and mitigate some of the detrimental retail headwinds.

In line with recent rumors Harvey would move away from AV, the company said it has tailored “the product offering of our franchisees towards the more profitable Homemaker categories.”

The enormous fall in net profit was also blamed on restructuring and closure costs of the Clive Peeters and Rick Hart and a 50%, or $127 m, drop in the profitability of the franchise operations due to lower franchise fees and a higher tactical support  given.

“We have endured one of our most challenging years since inception, but remain confident that our system is robust and is the most viable format to effectively compete in a difficult market,” Harvey said in a statement.

Harvey also said it made “strong progress” in its omni channel strategy, which is now the “the backbone of the business” – marking a dramatic turnaround for the company whose Chairman Gerry Harvey once claimed there was no money to be made from online.

The retailer also cited the successful launch of new online sites in both Australia and New Zealand during the year , giving consumers the ability to buy online, pick-up in-store and shop via mobile, and said it will continue to build its multi channel capability.

“Online sales are performing to our initial expectations and, whilst low, our digital platform has been established for the future.”

The number of Harvey Norman branded complexes grew by 19 and the number of company controlled operations fell by 20 to 76.