The Michael Hill International (ASX: MHJ) share price has been on a rampage recently – up 136% over the past 12 months.
Michael Hill is one of many retailers that have benefited from COVID-induced spending, along with others such as Temple & Webster Group Ltd (ASX: TPW) and Redbubble Ltd (ASX: RBL).
What does Michael Hill do?
Michael Hill is a jewellery retailer with 289 stores across Australia, New Zealand and Canada. It also has a strong digital offering, which has proven to be a key growth driver from the onset of COVID-19.
How’s the business travelling?
Michael Hill last updated the market in April with its Q3 trading update for the period ending 28 March 2021.
During this time, same-store sales were up 16.4% to $107.5 million while all store sales jumped 11.6% to $118.5 million. The former is a metric using stores that have been open for at least one year.
Online sales jumped 69.2% compared to the prior corresponding period (pcp), and 93.3% year to date.
Only one store was permanently closed during the period, with the current store network standing at 288 across all markets.
At the end of the quarter, Michael Hill finished with $50 million in cash and no drawn debt. It also revealed it had entered into a new financing facility jointly funded by ANZ and HSBC.
Time to buy Michael Hill shares?
Many of Michael Hill’s major markets are still being affected by COVID-19. This is likely diverting money away from international travel and into retail spending.
The obvious risk worth considering is whether this recent growth can be sustained over the long-term – say, 3-5 years from now.
It’s also worth noting that Michael Hill wasn’t the strongest performer prior to the recent boost from COVID.
Over the past several years, earnings per share (EPS explained) have been gradually trending down and top-line revenue growth has stalled as expansion into new geographies didn’t go to plan at one point.
That isn’t to say Michaell Hill can’t do well now – but it’s worth considering if the pandemic has been the catalyst that will see it continue to grow sustainably for years to come.
If I were to pick an ASX retailer in a similar space, I’d likely opt for Lovisa Holdings Ltd (ASX: LOV), which you can read more about here.
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