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Michael Hill (ASX:MHJ) HY21 update: Share price sparkles

Michael Hill International Ltd (ASX: MHJ) has released its HY21 update – profits have been sparkling and the share price is up over 5% in response.

Michael Hill International was founded by Sir Michael Hill in 1979 in New Zealand. There are currently 289 stores across Australia, New Zealand and Canada.

HY21 update

Michael Hill announced that in the FY21 half year ended 27 December 2020, it achieved same store sales growth of 6.3% and 5.6% for the second quarter (against respective prior corresponding periods). The company said that there was an outstanding performance in Australia.

However, total store sales fell by 2.4% for the second quarter and also declined for the half year by 2.8% against the prior corresponding periods.

Digital sales continued to deliver growth, increasing by 102%. Digital channels represented 5.8% of sales compared to 2.8% in the first half of FY20.

Michael Hill is expecting to generate $56 million to $60 million of EBIT (EBIT explained). On a comparable basis, EBIT is expected to grow by 30% to 40% to a range of between $41 million to $45 million.

There was margin growth across all markets and channels of between 150 to 250 basis points (1.5% to 2.5%) when compared to the prior corresponding period.

There was continued growth of branded collections, which represented 38.4% of total product sales, up from 35.4% in the prior corresponding period.

The company said that its Canadian segment was impacted by temporary store closures due to COVID-19, with 21 stores progressively closed through November and December and a further 25 stores closed from Boxing Day.

Due to the company’s first half FY21 trading performance and cash position, the Michael Hill Board has decided to pay the FY20 interim dividend earlier than anticipated. The FY20 interim dividend was previously deferred to 20 September 2021. It will now be paid on 29 January 2021 to shareholders with the record date of 13 March 2020.

Summary thoughts

Michael Hill has clearly seen some booming profit growth. Whilst this is impressive, I am sceptical about where to now for Michael Hill and the majority of the retail sector as a whole. With government stimulus winding down it brings back some uncertainty about the short term and long term growth of retail and discretionary spending, particularly when compared to such strong comparable periods during 2020.

Looking towards the longer term for Michael Hill – the year on year growth will be incredibly hard to beat. I am happy to let other investors jump on this one. I’m also happy to see that those who held through the COVID crash are being rewarded with a strong recovery.

One of the ASX growth shares in the retail space that I do like is City Chic Collective Ltd (ASX: CCX).

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Afterpay, Zip Co, Sezzle…

Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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