Harvey Norman profits play catch up after lockdown ridden first quarter

Harvey Norman (ASX: HVN) wasn't able to show its true colours in FY22 as Australian sales were severely impacted by government-mandated retail closures in the first quarter. The company' stock is down -0.7% in early trade.

Earnings at a glance:

Source: Harvey Norman | Table: Market Index

First quarter pain

The Delta variant kickstarted an almost 4-month lockdown across 58% of the Australian population, according to Harvey Norman.

The store closures reduced franchisee sales by -16.5% in the first quarter of FY22. Sales rebounded in the second quarter as Delta-related restrictions were progressively lifted but still closed out -1.7% compared to a year ago.

While business conditions improved in the second-half, the company still struggled to cycle through the record FY21, with sales down -2.9%.

"The demand for home, lifestyle and technology products has continued with strong sales in whitegoods, televisions and small appliances throughout the year," noted Harvey Norman.

Property segment ups the ante

"The investment market for large-format retail property has seen material gains in FY22 based on strong demand from property syndicates and institutional investors, resulting in competition for quality assets," Harvey Norman said in a statement.

The property segment includes 195 Australian franchised complexes which accommodate a complimentary mix of 450 third-party tenants diversified across hardware, medical, pet and auto-related products. 95 franchised complexes are leased to Harvey Norman and associated brand franchisees.

The property segment achieved 25.7% profit growth to $366.5m or 45.2% of Group profits.

FY23 outlook

"The start of FY23 has seen solid sales results. Low unemployment and high net deposit rates continue to underpin growth," said the company.

"As the uncertainty within supply chains eased within the second half of FY22, franchisees are well positioned to take advantage of new inventory ranges into the first half of FY23," the company added.

Aggregated sales for Australian franchisees was up 10.7% between 1 July and 29 August compared to the same period in 2021. Harvey Norman's New Zealand business posted 5.0% sales growth in the same period.

New Zealand is the company's largest overseas segment and contributed approximately 16% to Group net profits in FY22.

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