Michael Hill International Limited (MHJ) Earnings Call Transcript & Summary

[Technical Difficulty] [Operator Instructions] And I will now hand over to Jonathan Waecker.

Thank you, and good morning, everyone. Thank you for joining us today for Michael Hill International Limited's FY '26 Half Year Results Webcast. My name is Jonathan Waecker, and it's a pleasure to be speaking with you today as Chief Executive Officer. Today's webcast marks my first half year results presentation since joining the business 6 months ago in August of 2025. Joining me today is our Chief Financial Officer, Elodie Guillaumond, who commenced with the group in February. While Elodie is early in her time with the business, she has already spent a significant amount of time with our teams, our operations and our financials, and we're very pleased to have her with us today. I'll begin with a review of the group's performance for the first half. I'll then hand over to Elodie, who will take you through the financial and segment results in more detail. I'll return after that to provide a current trading update, outline our upcoming Investor Day, and then we'll open the line for Q&A. The first half of FY '26 was a strong half for the group with profitable growth delivered across all markets. Comparable EBIT for the half was $31 million, up 28.6% on the prior year, driven by revenue growth, improved execution, go-to-market and a stronger operating leverage, coupled with gross margins holding broadly flat. From a top line perspective, all 3 markets contributed positively to the result, and all 3 markets showed significant momentum improvement, following our FY '26 trading update back in October 2025 at our AGM, where we shared group sales for the first 16 weeks of FY '26. For the full 26 weeks of the half, Canada delivered yet another record performance with same-store sales growth of 6.1%, a step-up from the 4.1% same-store sales growth rate that we shared at week 16. Australia delivered a strong result as well with same-store sales up 4.8%, significantly improving from the 0.7% same-store sales growth rate that we shared at week 16. And importantly, New Zealand returned to positive same-store sales growth, up 1.8% for the half, an 800 basis point improvement from the negative 6.2% same-store sales growth rate that we shared at week 16. Since joining the business 6 months ago, I've spent a significant amount of time in our stores and with our teams and our customers. In fact, I'm pleased to say that I've already spent time in over 40% of our 285 stores across all 3 countries in my first 6 months. The feedback I've received has been very consistent: when we simplify how we operate, stay close to the customer and focus on delivering the retail fundamentals, our performance improves. Over the half, we acted on that feedback. We tightened our product focus. We sharpened our go-to-market approach, and we introduced more deliberate price point marketing. That has made it clearer and easier for customers to engage with our offer across opening, core and premium price points. Importantly, this clearer price architecture has also supported margin discipline, allowing us to be more targeted and deliberate in our promotional activity while maintaining a balanced mix across our value, core and premium ranges. During the first half of FY '26, our product initiatives played a meaningful role in supporting trading performance. The introduction of new collections, including Vermeil, Lume LAB and the Earring Bar drove customer interest and newness across the brand, while the continued broadening of our Pendant Bar range further enhanced the in-store experience. At the same time, our focus on showcasing exceptional quality at attainable price points strengthened our overall value proposition. Complementing these initiatives, the expansion of our curated Christmas gift sets, limited edition items and novelty ranges ensured we met diverse customer needs during peak gifting periods, supporting momentum across our major markets throughout the half. The half also saw the successful opening of 3 Michael Hill flagship stores ahead of the key Christmas trading period: Rundle Mall in Adelaide, Bondi Junction in Sydney and Yorkdale in Toronto. Each of these stores incorporates our new brand design and a modernized in-store customer experience, showcasing our elevated product offer and creating a more engaging, accessible and premium environment for customers across our key markets. Following the evolution of our product in-store experience, an important operational milestone during the half was the successful transition to our new New Zealand distribution center, which became operational early in the financial year. This was a deliberate investment to strengthen service, improve reliability and to support the New Zealand business for the long term, and we are already seeing tangible benefits. Since the new distribution center went live, around 70% of New Zealand customer orders now ship on the same day. All New Zealand stores can now be replenished daily, which was previously not possible. Store replenishment frequency has increased by approximately 25% to 40% and fulfillment is now more consistent and predictable in addition to being faster. In practical terms, this means better availability for our customers, an improved in-stock position for our stores and a more disciplined and responsive supply chain. Importantly, it is supporting improved execution, both in-store and online, and helping to underpin the improved trading momentum we saw in New Zealand during the half. In fact, during our latest stock take in New Zealand, we had a zero item and dollar variance, which demonstrates the incredible accuracy this new approach enables. Taken together, these actions reflect a business that is becoming more disciplined, more customer-focused and better positioned to deliver sustainable performance over time. Before moving into the financial detail, I'd like to formally introduce Elodie. Elodie joined Michael Hill as Chief Financial Officer in February of 2026. She brings more than 20 years of experience across listed and private sector organizations in Australia and internationally. She began her career with PwC as an auditor and has since held senior leadership roles with Ampol Australia, Amart Furniture, Coles Supermarkets and British American Tobacco. Her experience spans finance transformation, operational efficiency, margin improvement and disciplined capital allocation. Elodie's ability to deliver disciplined financial management to unlock operational efficiencies and to support sustainable margin expansion will be invaluable as we focus on building a stronger, more profitable business. In addition, her commercial acumen and collaborative approach are a strong fit for our culture and our ambition. And with that, I'll hand over to Elodie.

Thank you, Jonathan, and good morning, everyone. For the half year, group revenue increased by 3% to $371 million, supported by solid performances in Australia and Canada and a return to positive sales growth in New Zealand. Group same-store sales increased by 3.8%, reflecting excellence in execution of product, brand and promotional initiatives across all markets. Gross margin was 61.2%, broadly in line with the prior year as higher input costs, particularly gold and silver, were offset by focused promotional activity and improved product mix driven by bridal, diamond fashion and colored stone categories. Comparable EBIT increased by 28.6% to $31 million, reflecting higher sales and improved operating leverage through disciplined cost management. These results were delivered with a net reduction of 2 stores in the half and 9 for the full calendar year, resulting in a store network of 285 stores at the end of the half. In addition, a key focus during the half was disciplined balance sheet and working capital management. The group finished the half with a positive net cash position of $20.7 million, an improvement of $30.5 million on prior year, where closing net debt was $9.8 million. This result was achieved by implementing a number of working capital initiatives. Along with improved supplier terms, inventory was reduced by $11.3 million to $201.9 million, reflecting improved stock efficiency, better replenishment capability and tighter inventory discipline across the business. Importantly, the business remains committed to a reduced capital expenditure profile across both technology and stores. During the half, the business successfully refinanced its existing debt facility on improved margins for an additional 2 years with its long-term banking partner, ANZ, and introduced a new lender, CBA. Even though the Board has decided not to declare an interim dividend for the half year, restoring a sustainable and consistent dividend remains a priority for the Board. Reflecting the continued improvement in the group's balance sheet and trading performance, the Board intends to return to dividends at the full year results, subject to current trading conditions continuing and in line with the company's dividend policy. Moving now to segment results on Slide 6. In Australia, including Bevilles, revenue increased by 2.1% to AUD 209 million with same-store sales up 4.8%. These results were underpinned by positive growth in the Michael Hill brand. Gross margin increased by 20 basis points and with an improvement in comparable EBIT. The Australian network finished the half with 160 stores, including 37 Bevilles stores. In Canada, revenue increased by 6.2% to CAD 96 million with same-store sales growth of 6.1%. The strong outcome reflects the continued execution of the Canadian team, delivering another record performance and demonstrating the business' ability to consistently gain market share in a competitive environment. Gross margin increased by 70 basis points and the store network finished the half with 82 stores. In New Zealand, revenue increased by 2.4% to NZD 62 million with same-store sales growth of 1.8%. Gross margin declined by 60 basis points, largely driven by the deliberate introduction of products at an attractive price point, which successfully delivered growth in sales and gross profit. Pleasingly, the overall business profitability improved on the prior year. The New Zealand network finished the half with 43 stores. That concludes the financial and segment overview, and I'll now hand back to Jonathan.

Thank you, Elodie. Turning now to current trading. I'm pleased with how the business has started the second half and that the momentum we began to build throughout the first half of FY '26 has continued into the second half. For the first 8 weeks of the second half, total group sales were up 4.5% with group same-store sales up 6%. In Australia, same-store sales increased by 6.5%, reflecting progress in expanding our addressable customer base through clearer product architecture and improved execution. In Canada, in local currency, same-store sales were up 13%, building on the strong first half performance in that market. And in New Zealand, also in local currency, same-store sales increased by 7.1%, which is encouraging and reflects improving customer engagement and operational consistency. While we remain mindful of current economic conditions, the first 8 weeks are encouraging and demonstrate that consistent execution of retail fundamentals is translating into improved performance for the group. Before we move into Q&A, I'd like to close by highlighting our upcoming Investor Day to be held on Tuesday, the 14th of April, 2026 at our global head office in Cannon Hill, Queensland. In addition to presentations on the business and our refreshed group strategy, the day will include a tour of our on-site Brisbane distribution center and manufacturing facility. This will give our investors and analysts the opportunity to see firsthand how our operational capabilities support our brands, our supply chain and our customer proposition. To conclude, the first half of FY '26 represents a solid step forward for Michael Hill. The result reflects a business that is executing more consistently, managing capital more effectively and delivering improved performance across all markets. Thank you for your continued interest and support, and we'll now open the line for any questions.

[Operator Instructions] Our first question comes from Kieran Carling from Craigs Investment Partners.

First question from me is just on your balance sheet. So the $30 million improvement in your net cash position appears to be largely driven by the unwind in net working capital, I guess, in particular, the $23 million increase in payables. So you mentioned that you've renegotiated new supply terms with a key partner. Can you just tell us what the implications of that are and how we should be thinking about payables and net debt tracking into year-end?

Thanks, Kieran. Great to hear from you, and thanks for asking the first question. That is very much a question that Elodie will have a detail on. So I'll pass it to her.

Thanks, Kieran, for your question. And you're right in terms of the balance sheet position at the half and the net working capital. So what we've put in place is new terms with some -- with one supplier in terms of really having some stock in our stores, and we actually only pay that stock when it is sold. And we also have a possibility to return that stock if it's not sold at some point. So as you can see, that improves our working capital. And so naturally, that did actually increase our payables by around $10 million at the half. The accounting treatment is that we still have to recognize it in our inventory. So the benefit flows through the payables. And so we're really happy with that trial. It's been going really well. It does improve our working capital, reduce our risk in terms of inventory. It does increase availability for customers. And we're really looking forward to potentially do more of it. I'm not sure if that would be in this half, but look at potential growth of that opportunity.

Okay. But just in terms of how we expect it to track into year-end, I mean, payables at 30 June last year were $70 million. You're sitting at $115 million or so now. Do you expect it to return to that $70 million level or remain elevated or somewhere in the middle?

In terms of your -- I mean, there is always some timing. So I mean, being 4 weeks in the role, I'll have to really look in details where we will end on year-end. But it also depends sometimes on -- it depends on the timing of where we close the year and the trading is at, at that time, so that will impact the payables. In terms of that benefit of the $10 million, I would expect that it does carry or you will expect it will carry into the year-end.

Okay. Next question is on the balance sheet as well. You've signaled that dividends are likely to be reinstated in the second half of the year. But at the same time, we've seen the Bevilles store rollout paused, and you've commented specifically on Australia that the Michael Hill brand has been underpinning the performance there. So 2 questions here. Where do the capital allocation priorities sit in the context of network growth versus paying out distributions? And I appreciate you're new into the roles, but are you standing by the growth targets for Bevilles that were set by the previous management team of getting to 80 to 100 stores? And if so, what is your time line for getting there?

Thanks, Kieran. I think it's safe to say that the first half was a challenging period for Bevilles, reflecting softer trading in the rest of the group, which, as you picked up, we reflected in that statement. However, early December represented a clear inflection point for us with improved execution, stronger promotional clarity and early signs of margin recovery in the Bevilles business. So pleasingly, this momentum has continued into Q3, so the first 8 weeks of H2 that we shared with you, with Bevilles trading ahead now of the group average. We'll have more details on Bevilles provided at our Investor Day as well as more details on our capital allocation prioritization at that Investor Day as well. So we'll have updates on both of those things for you then.

Okay. And then maybe final one for me. You've obviously done a good job holding gross margins flat year-on-year despite the elevated input costs. It doesn't seem as though those pressures are going anywhere in the near term. So can you just give us a steer, perhaps directionally, on how you see gross margin tracking through the second half and into FY '27?

We are planning -- so gross margin is obviously an area of focus for us, and we are very focused on maintaining margins and ideally growing them. We don't want to see the margins go backwards. As you mentioned, the input costs are a very real consideration for us. Gold has been a topic of conversation for this forum for quite some time. Silver has now entered the conversation with quite a bit more volatility in the last quarter. So we're tracking both of those things. But at the moment, we've been able to manage the impacts of both of those movements through a variety of levers within the business and our consumer momentum seems unchanged as a result of how we're managing it. So ideally, by the end of the half, we would like to see an improvement. What that improvement will be, we will get back to you on.

And our next question is from Guy Hooper from Jarden.

If I could just pick up on Kieran's point around gross margin. Can you give us a bit more of a stat as to how much of a drag those sort of precious metal prices have been in gross margin? And then I guess, perhaps on the other side, what sort of benefits you're seeing from your own initiatives and product mix to help offset?

Yes, 2-part question. So the first part of that, I'd actually frame it a bit differently, Guy. We're not implying a drag necessarily on gross margins due to input costs. It's just a level of volatility that we know we need to manage as we consider our gross margin performance. And that flows through to very practical choices like how we set pricing, how we consider promotions, you name it. But we are in a very strong position as a business when it comes to our ability to manage those precious metal prices and to pass those price increases when they do come through on to customers. Our consumers very much see the value of the brand, coupled with the value of the precious metals, and we want to continue to help them kind of access those metals through our brand proposition. So definitely not seeing it as a drag per se, but we are flagging it as just a level of volatility that we need to continue to manage because any business that has that level of volatility in one of its fundamental pricing inputs just needs to be wise to it. But we are very confident with the strength the team is showing on their ability to manage through that as evidenced by a record period of volatility in the precious metal pricing, resulting in our gross margins being effectively flat while driving top line growth. So I'm very proud of what the team has been able to achieve. Going to your second question on kind of the mix. We've introduced a variety of elements into the business over the last couple of years. You have mix -- changes in lab, changes in different metal compositions, changes in price points. And the combination of those changes is also supporting our ability to mix the overall portfolio in a margin-supportive way. Some of those new additions include Vermeil, include our Pendant Bar, our Earring Bar, but as well as our continued focus on appropriately moving forward our lab program and making sure we're kind of capturing and pushing margin in the places where it makes the most sense. So we'll probably share a bit more on that at the Investor Day. That feels like an appropriate time for us to give a window into the parts of that strategy in particular. But what I can say from where I'm sitting is that the team's ability to create a portfolio mix and to mix the margin has been very helpful in helping us maintain that.

Great. Just one more, I guess, on the [ raw ] input costs. Can you remind us what sort of lag exists between what we see in the commodity prices and then how that actually flows through into, say, into your COGS?

Yes. We're historically on a slower stock turn business. And so any increase in metal cost does not show up in our cost of goods sold immediately. It does take time to go through. Now in some categories where we have faster stock turn, it does show up sooner. In other categories, it shows up later. But if you were to add everything up, divide it through on average, we're around a year.

Yes. Canada has been a bit of a standout region for a little while now, and it's, I guess, continuing to do so per the trading update. Can you talk a little bit about where you're winning in that market and maybe how we should think about growth going forward?

Yes. The Canadian market, it's one where, despite having the same brand proposition in all 3 markets, obviously, we're positioned a little bit differently. In New Zealand, we have about 1 store for every 100,000 kiwis. In Australia, it's about double that, 1 for every 200,000. And in Canada, our share, if you want to call it that, is about 1 for every 500,000. So we come from a very different starting point, if you will, and we continue to grow the market there. At the same time, the Canadian market is actually -- we believe it's comparatively well positioned. Interest rates are stable at 2.25%. Consumer conditions are comparatively supportive. So we also expect, as a market, it will continue to perform comparatively well. The Canadian consumer and the product market fit for Michael Hill, the more we push into that market, the more we continue to see signs that, that consumer likes what we have, is responding well to our offer and is continually kind of pushing our innovation to just kind of continue to go forward. So we're bullish on the Canadian market. We're bullish on our propositions there. As Elodie mentioned, we're currently in the low 80s in terms of stores. We're thinking about what might a future rollout look like there to round out that footprint to its most appropriate end state. It's worth noting that we are not in Quebec. So we are in all of Canada, but not in the Quebec territory. But on balance, we're bullish on Canada. We like the product market fit and the consumer is telling us they like what we have.

And our next question is from [ Andrew Od ], a private investor.

That was really quite a good result. Just on the Investor Day, will it be broadcast? Would I be able to attend it online?

Thanks, Andrew, for your question. That is not the plan at the moment. However, we will -- just because of logistics of doing that, we are planning to upload all the materials prior on to the ASX and NZX. So we will 100% make any materials we share available. We're also considering how might we take the materials we share into various markets afterwards. So for example, how might we set up something in the New Zealand market in Auckland at a later date, just so that we can create a more kind of localized narrative with investors who aren't able to make the trip over to Brisbane. But for the moment, we're planning on uploading all the materials. We are not planning on broadcasting it, just for logistics, and we're planning on hopefully having more touch points with investors in the New Zealand market after that.

I would be quite happy to watch a recording of it at a later date, even just an audio recording, if that's possible. So if you can just keep that in mind.

Absolutely. No, thanks for the recommendation.

And just another question. On the New Zealand market, I mean, many years ago, New Zealand was the jewel in the crown. But are you able to give some color on sort of what's evolving in the New Zealand market? It was pleasing to see the improvement in the 6-month result in the New Zealand market.

Yes. It would be bold for me not to say that New Zealand isn't still a jewel in our crown. It is absolutely the spiritual home of the brand, and it's definitely the type of market that we want to make sure we continue to perform well in. From a macro point of view, the New Zealand market is showing early signs of recovery. Inflation seems to be easing. The OCR now held at 2.25%. We're seeing that flow through into consumer confidence. So it should support a modest kind of uplift in overall economic activity in the market, we believe, in the half. For the Michael Hill business, you would see that the uplift that we saw between week 16 and 26 really does show us that when we get the product market fit right in New Zealand, the New Zealand consumer really does respond quite favorably. So we're definitely doing more in that space, and we'll definitely continue to do more of the things that are working. What you would see in the results is that the EBIT result in New Zealand has also started to increase. So when we think about the New Zealand market, we definitely manage it and are thinking about it differently than the other 2 markets. That's probably a bit of a newer behavior for the Michael Hill Group. We've tended in the past to potentially be a bit more homogenous than we needed to be across 3 markets. What you're seeing us do now is creating a framework and a fabric that allows the nuances of each market to really perform to their strengths. As a result, the New Zealand market pulled different levers going into Christmas than our other markets did. And that drove -- the combination of those levers, that drove an uplift in sales and an uplift in EBIT. We grew EBIT 1.6% to NZD 9.6 million as a result of those changes while also growing top line. So to be able to grow top line growth and to grow it profitably is very much the focus of New Zealand, and we're very, very pleased that, that market is once again growing for us.

So are you seeing the sort of New Zealand consumer different to that in sort of Canada and Australia?

Yes. I mean in the ways that they appropriately respond to things like pricing, promotion, the economic conditions are different. It's very appropriate for a business like ours that's operating in 3 countries to enable our local markets to have nuances where it makes sense. So you'll continue to see us potentially do things like promotional differences in markets, pricing differences in markets, enabling each of our local consumers to really access the brand in the way that's most right for them. The contrast to that would be being homogenous kind of across the board, and we don't think that's a good strategy for us going forward.

As I'm seeing no further questions in the queue, I will now hand back to Jonathan for some closing remarks.

Just once again, I'm very, very proud of the work that the team has done to get the growth that we achieved in the first half of the year, and particularly on the back of Andrew's final question, seeing our New Zealand market return to growth is something that's particularly near and dear to the spiritual home of this business and something we're very proud of. Thank you again, everyone, for your questions. Thank you for participating in the results, and we look forward to seeing as many of you as possible at our Investor Day in April. Thank you.