The Michael Hill (ASX:MHJ) share price slips despite record Christmas trading results

A woman wearing jewellery shrugsA woman wearing jewellery shrugsA woman wearing jewellery shrugs

Key Points

  • The jewellery retailer announced a record-breaking Christmas trading period today
  • The Michael Hill share price dropped this morning despite the positive update
  • Strong holiday trade saw the Michael Hill share price lift more than 20% between Christmas and New Year

The Michael Hill International Ltd (ASX: MHJ) share price is slipping despite the jewellery retailer releasing a positive second-quarter trading update this morning.

In fact, it’s not just positive — it’s record-breaking.

So why did the Michael Hill share price plunge in opening trade before heading back to the starting blocks? At the time of writing, the company’s shares have slipped again, trading down 0.35% at $1.43 apiece. Let’s take a closer look…

2021 holiday period ‘best in history’

When it comes to the holidays, the old saying goes that ‘the best gifts are wrapped in the smallest boxes’. This was the case towards the end of 2021 for jewellery giant, Michael Hill.

In the weeks leading up to Christmas Day, the Michael Hill share price remained fairly stagnant, but its sales did not.

The company expects its earnings before interest and taxes (EBIT) for the second quarter of 2021 (the period ending Boxing Day) to be between $49 to $53 million.

For the same period in 2020, the company reported earnings of $44.6 million.

Despite lost trading days due to coronavirus-related lockdowns, the jeweller advised its in-store sales were up 9.8%, and its same store sales (meaning the difference in revenue brought in by existing outlets over the time frame) was up 9.6% from the previous year.

This accounts for its 285 stores across Australia, New Zealand and Canada. There were also no store openings or closures during this time.

More closely, same-store sales for Australia were up 5.2% and all store sales were up 2.2%.

Lockdowns didn’t slow digital sales

Accounting for those who couldn’t purchase shiny things in store in time for the holidays, the company’s digital sales were up almost 30% — representing 8.2% of total sales for the year to date.

The jeweller also reported a rise in the rate of profit made on its products during its second quarter — between 200-300 basis points “in all markets and channels” against the previous year.

The company attributed this revenue to its efforts in elevating its brand and increased focus on operations.

Finally, the company boasted a strongly maintained balance sheet — proudly reporting “disciplined inventory management, robust cost controls and strong sales”, leading to a “healthy cash position”.

Looking ahead, Michael Hill will continue to brainstorm new approaches for growth and capital management.

Comment from management

Managing director and CEO Daniel Bracken said:

The successful planning and execution of Christmas underpinned this outstanding result — I couldn’t be prouder of the entire team.

From the highly engaging and emotive marketing campaign, to the deployment of new digital initiatives, excellence in supply chain and inventory management and our Christmas recruitment strategy, all came together to deliver Michael Hill’s best Q2 in the company’s history.

Between Christmas Eve and New Year’s Eve, the Michael Hill share price jumped 21%.

Michael Hill share price snapshot

The Michael Hill share price has been a retail success story since the pandemic struck in early 2020. After plummeting as low as 24 cents in March 2020, it has steadily climbed, rebounding by almost 500%.

The jeweller saw its share price hit a 52-week-high at the end of 2021 when it released an early indication of its business performance for the half-year of FY22. This record was shot out of the water on 4 January when the price touched a new high of $1.57.

The jeweller currently has a market capitalisation of $555 million and a price-to-earnings ratio (P/E) of 11.96.

The post The Michael Hill (ASX:MHJ) share price slips despite record Christmas trading results appeared first on The Motley Fool Australia.

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Motley Fool contributor Alice de Bruin has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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