Michael Hill Navigates Tough Markets with Margin Gains Despite EBIT Drop
Michael Hill International reports a 24% drop in comparable EBIT for FY25H1 amid challenging conditions, yet margin improvements and digital growth offer a silver lining.
- Comparable EBIT forecast down 24% to $22.5–24 million
- Group sales slightly declined 1%, with Canada and Australia growing, New Zealand falling
- Gross margin improving to 61–61.5%, aided by new product launches
- Digital sales now 8% of total, boosted by omni-channel initiatives
- Cost reduction plans targeting $5 million savings in H2
Challenging Retail Environment
Michael Hill International Limited has released its trading update for the first half of fiscal 2025, revealing a mixed performance shaped by persistent macroeconomic headwinds. The jewellery retailer reported a decline in comparable EBIT to a range of $22.5 million to $24 million, down from $31.3 million in the prior corresponding period, reflecting a 24% contraction. Group sales were slightly down 1% to $359.1 million, with currency-neutral sales flat year-on-year.
New Zealand proved the most difficult market, with same-store sales falling 7.8%, weighed down by ongoing economic pressures. In contrast, Canada and Australia delivered modest growth, with Canada achieving a 2.7% increase and Australia 0.6% on a same-store basis in local currency.
Margin Recovery and Product Innovation
Despite the sales softness, Michael Hill’s gross margin showed encouraging signs of recovery, expected to range between 61% and 61.5% for the half, up from 59.5% in the second half of FY24. This improvement is attributed to strategic product and brand initiatives, including the launch of the "Pendant Bar" concept and the expansion of the "LAB." collection featuring high-quality laboratory-grown diamonds. These innovations are helping offset higher input costs and tougher retail conditions.
Digital Growth and Inventory Management
Digital sales continue to gain traction, now representing 8% of total group sales, supported by strong online traffic and omni-channel efforts, particularly through the Bevilles brand. Inventory levels remain tightly controlled, with a slight reduction to approximately $215 million, down $5 million from the previous year, reflecting disciplined stock management amid uncertain demand.
Strategic Cost and Store Portfolio Adjustments
Management is proactively addressing cost pressures, targeting $5 million in cost savings in the second half by realigning resources to strategic priorities. The store network saw a net reduction, closing nine Michael Hill stores while opening one new store in New Zealand and two new Bevilles stores in Australia, bringing the total store count to 294 globally. Notably, the company opened a second global flagship store in Melbourne, showcasing its refreshed brand identity and elevated in-store experience.
Outlook and Market Positioning
CEO Daniel Bracken acknowledged the disappointment in overall sales but highlighted the resilience and strong execution of the team amid challenging conditions. He noted encouraging sales momentum in December and January, particularly in Canada, signaling potential for recovery as economic conditions improve. The company’s focus on innovation, margin recovery, and cost discipline positions it to capitalize on an eventual market rebound.
Bottom Line?
Michael Hill’s margin gains and digital growth offer hope, but sustained recovery hinges on easing economic pressures.
Questions in the middle?
- Will cost reduction initiatives fully offset margin pressures in H2?
- How sustainable is the growth in digital sales amid broader retail challenges?
- Can New Zealand’s market conditions improve enough to stabilize sales?
