Furniture, homeware and appliances retailers like Harvey Norman Holdings Ltd [ASX:HVN] have been the major beneficiaries of the pandemic.
But the retailer’s recent share price retreat could be signalling the end of HVN’s stellar run.
With its half-year results out today the HVN share price has dropped a further 1.70% to $5.21, despite profits swelling by more than 116%.
But with government stimulus packages set to end next month, investors are worried that growth will begin to moderate.
Numbers have already begun to decline
It is difficult to fathom how more than doubling profits and tripling the interim dividend could lead to a drop in share price.
Yes, HVN will pay an interim dividend of 20 cents per share. Up big from just 6 cents last year.
But I guess that’s what we have come to expect in the current pandemic — things can get a little topsy-turvy.
HVN announced a net profit before one-off items of $438.17 million, well ahead of market consensus forecasts around $412 million today.
Group sales from franchised stores in Australia and company-owned stores overseas soared 25.8% to $5.12 billion.
The strong sales and profit growth helped HVN to pay down more than $500 million of debt, leaving them with net cash of $21.7 million at the end of December.
Compared with net debt of $553.2 million a year ago.
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So, why the negative reaction today?
There could be a couple of reasons.
One: investors might expect HVN will have to pay back some of its profits to the government.
HVN-owned companies in Australia received $3.6 million in JobKeeper subsidies, while franchisees received $7 million.
Meaning pressure could mount for them to pay that back following the example set by some of its peers.
The second: sales growth across its Australian and overseas stores has begun to show signs of moderating.
Q2 sales growth dropped sharply in Australia compared to Q1, from 32.3% to 23.5%.
With a total sales growth decline to 21.2% in Q2 from 28.7% in Q1.
Is it really that bad?
Truth be told, the outlook is not bad for HVN, in my opinion anyway.
Analysts expect demand to remain elevated for at least as long as international travel is off the agenda.
Although that could change come October or November.
Uncertainty has hit the market again.
And investors are waiting to see what happens once JobKeeper and JobSeeker dry up.
A pullback in sales and profit growth could certainly be on the cards for HVN.
But that doesn’t mean its outlook is bad or that it has lost its value.
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