GUD Holdings profit up 33%, but Harvey Norman disappoints with weak sales

While retail giant Harvey Norman disappointed the market yesterday with a weak result due to frugal consumer spending, shares in GUD Holdings have gained over 3% after the company announced a profit increase of 33%, thanks in no small part to its MasterChef sponsorship.

Shares in Harvey Norman, however, fell 1.69% after the company said fourth quarter sales were down 4% to 30 June due to the volatile retail market.

GUD managing director Ian Campbell announced the 33% increase in net profit after tax to $46.4 million, along with an EBIT increase of 18% to $71.6 million.

Revenue grew by only 2% to $476.6 million, due to what the company said was a “mild start to winter and withdrawal from personal care categories”.

The company’s Sunbeam and Oates divisions recorded an EBIT increase of 13% to $33.9 million, while the LockFocus security division recorded EBIT up 36% to $1.7 million.

It also said sales of kitchen appliances have grown due to its MasterChef sponsorship, even though spending in consumer products overall dropped 2% to $249.7 million.

Looking ahead, Campbell said the market is suffering “competitive market conditions in appliances and cleaning products”.

“Profit margins in our existing businesses are expected to be maintained, given our focus on tight cost controls, active supplier management and our secured foreign exchange position for 2010-11,” he said.

Retail giant Harvey Norman is another company feeling the pressure of a tough retail market.

Chief financial officer Chris Mentis said sales rose by 0.8% to $6.08 billion over the full 2009-10 year compared to 2009. Like-for-like sales also increased for the full financial year by 0.2%.

The real impact of the weak retail market was felt during the first six months of 2010, the company said. Sales for the first and second quarters were up by 5.8% and 6.8% respectively, but remained flat and declined by 4% during the third and fourth quarters.

Like for like sales also declined by 3.4% in the fourth quarter, and ended up 2.3% over the full financial year.

Apart from weak retail spending, Mentis said the company suffered a negative affect from the 2.1% deterioration in the New Zealand dollar. Chairman Gerry Harvey told The Australian one of the biggest challenges the company faces is deflation, particularly in electronics.

“It’s not units that have been affected as much as it’s the deflationary effect,” he said.

“The biggest problem would be flat-panel TVs, which might have a 30% in sales by number but a decrease in dollar terms, and it’s a similar story with computers and even refrigerators and washers to a limited extent.”

While he hopes lower prices will keep interest rates low, inflation data due out to tomorrow is expected to show prices are growing quicker than the Reserve Bank would like, leading to a rate rise next Tuesday, 3 August.