Welcome to the Michael Hill First Half Year 2025 results. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask a live audio question during today's call. To ask a live audio question, press the Request to Speak button at the top of the broadcast window. The broadcast will be replaced by the audio questions interface. Press Join Queue, and if prompted, select Allow in the pop-up to grant access to your microphone. If you have any issues asking a question via the web, a backup phone line is available. Dial-in details can be found on the Request to Speak page or on the homepage under Asking Audio Questions. The audio queue is now open, and I will now hand over to Andrew Lowe.
Good morning, and thank you for joining Michael Hill International's FY2025 First Half Year Results Update. I'm Andrew Lowe, CFO. Unfortunately, Daniel Bracken, our CEO, cannot join me today for this financial update as he is unwell. Today, I'll be taking you through a review of our FY2025 Half-One Results, a current trading update, and providing you with further insights on the group's strategy before ending with a Q&A session. The prevailing macroeconomic pressures continue to impact consumer sentiment and discretionary retail trading conditions throughout 2024, with conditions in New Zealand remaining particularly challenging. However, our two largest segments still delivered growth, with Canada delivering another record-sized performance. Gross margins started its recovery journey underpinned by product and brand initiatives, which are offsetting higher input costs and aggressive retail trading conditions. Introduction of higher margin gifting products increased transaction volumes for the key Christmas period.
Pleasingly, strong digital traffic and deployment of Bevilles omnichannel initiatives have supported the increase in digital sales, resulting in sales of AUD 30.3 million for the half and representing 8.4% of group revenue. During the half, the business made significant progress on Michael Hill brand and product initiatives. This was best demonstrated by the opening of our second global flagship store in Bourke Street, Melbourne, which showcases the new brand icons and offers an elevated in-store experience for our customers. The refurbishment of our Queenstown store in New Zealand also clearly represents this new brand identity. The successful launch of the Michael Hill Pendant Bar concept with a focus on both build-your-own and ready-to-wear gifting, and the introduction of elevated quality in our certified sustainable lab diamonds in this high-growth category. Moving on to the group financial results.
The group reported a decline in earnings with comparable earnings before interest and tax of AUD 24.1 million for the half-year ended 29 December 2024. This result was driven by a combination of more aggressive retail competition, higher annualized operating costs across labor and occupancy, and the ongoing challenges of raw material costs, particularly gold prices. For the half, the group delivered a revenue of AUD 360 million, down 0.7% and flat on a constant currency basis. Sales for the half reflected strong business performance in the first three months, which was offset by more challenging results in the second quarter as we cycled record prior year sales in both October and November. Gross margin for the half was broadly in line with FY2024 H1 despite higher input costs, particularly the gold price.
With inflationary pressures impacting our operating cost base, the business took the decision in January 2025 to initiate an AUD 5 million cost reduction program in the second half as we align resources to our strategic priorities and trading performance. Active management of inventory saw holdings reduced by AUD 6.6 million to AUD 213 million at the end of the half, reflecting a reduction in the store network profile and steps taken to reduce stock holdings. During the half, the business has remained committed to a reduced capital expenditure profile across both technology and stores, resulting in a closing net debt position of AUD 9.8 million. As a proactive capital management measure to support seasonal working capital requirements for Christmas trade, the existing AUD 90 million debt facility has been increased for the four-month period from 15 September 2025 by AUD 20 million.
This lower funding requirement for the upcoming year reflects disciplined balance sheet management across cash, inventory, and capital expenditure. Given compressed earnings in FY2025 H1 and in conjunction with a commitment to prudent investment in operating and capital expenditure in FY2025, the board has decided that no interim dividend will be declared for FY2025 H1. For Michael Hill, seven stores were permanently closed, two stores were converted to Bevilles, and one new New Zealand store was opened, taking the network to 256. For the half, the Bevilles store network expanded to 38 with two additional conversion stores. The group network was 295 stores at the end of the half across all markets. In Australia, retail segment revenue increased by 1.2% to AUD 205 million for the half with five fewer stores, an increase of 0.6% on a same-store basis, underpinned by positive growth in the Michael Hill brand.
Gross margin for the half was 60.5%. The Australian store network finished the half with 166 stores, including 38 Bevilles stores. In Canada, retail segment revenue increased by 2.4% to CAD 91 million for the half, an increase by 2.7% on a same-store basis. This result is a credit to the Canadian team, resulting in yet another record performance, especially considering the continuing challenges in the local economy and indicates the business is taking the market share. Gross margin for the half was 60.8%. During the half, two stores closed, resulting in 83 stores at the end of the half. In New Zealand, retail segment revenue decreased by 7.4% to NZD 61 million for the half and decreased by 7.8% on a same-store sales basis. Despite the focus and effort from the business, external economic factors continue to present challenging retail conditions in New Zealand.
An internal strategic review of our New Zealand segment is underway as we navigate the cyclical downturn in the economy, leverage the brand's heritage, and reestablish the profitability of this segment. Gross margin for the half was 58.9%. During the half, one store opened, resulting in 45 stores at the end of the half. Moving on to our current trading update. For the first seven weeks of FY2025 H2, group sales were up 3.2% on prior year, with same-store sales for the Australian segment up 3.8% on prior year, Canada segment up 6.7% on prior year, and the New Zealand segment down 1.9% on prior year. Total sales for the group were up 1.7% for the first seven weeks of FY2025 H2. For the rest of the presentation, I'll provide you with an update on our 10-year group strategy and our short-term strategic priorities.
With the Michael Hill Group multi-brand strategy now in place, the business is firmly focused on the third phase, reinforcing that each brand is uniquely positioned for different segments and price propositions and with their own strategic priorities. In FY2024 Q4, the complete refresh of the Michael Hill brand was revealed, delivering a new elevated aesthetic across all brand assets, color palette, and logos. Elements of the new brand assets were gradually brought to life across digital platforms, stores, and consumer packaging. This also saw a new global flagship store come to life in Chadstone, the most premium center in the Australian market. The new store incorporated all aspects of the new brand, product, and proposition, with a new high-value product offering, elevated in-store experience, and private selling spaces.
To coincide with the brand refresh and our first flagship store of the future, Michael Hill partnered with its first-ever global brand ambassador, Miranda Kerr. Her timeless elegance resonates in all our markets. Simultaneously, new key product offerings such as the Signature Lock range and the exclusive cut 101 Facet diamond collection were launched. During FY2025 H1, the business continued to embrace the aspirational brand positioning, that being aspirational yet accessible. With this successful opening of its second global flagship store, showcasing our new brand icons and offering an elevated in-store experience in Bourke Street, Melbourne. In addition, the Queenstown store in New Zealand was refurbished to incorporate this new brand identity. Prior to the all-important Christmas trading period, the business successfully launched its new Pendant Bar concept with a focus on both build-your-own and ready-to-wear gifting, which provided a unique proposition in our markets.
Introduced a range of higher-margin gifting products to drive transaction volumes for the key Christmas period and elevated our certified sustainable lab diamonds in this high-growth category. These initiatives demonstrate that the business is continuing its product evolution and tactical introduction of newness with a focus on quality, innovation, and sustainability. Moving on to Bevilles. Following the acquisition, the store network expanded into the new territory of Queensland with five new stores and two conversion stores. This was accompanied by three new stores and two conversion stores in existing territories, increasing the total store network to 38 stores. In FY2024 H2, the Bevilles operations transitioned to Group Operational IT Systems and relocated its head office and distribution center to Brisbane. During FY2025 H1, the business delivered highly engaging discount-led promotions to capture customers in the value segment and expand brand awareness.
Given the current cost of living pressures in Australia, the value segment of the market was highly competitive with extensive retail promotional activity. The business sourced new product carefully engineered to deliver higher gross margin to counter the required level of promotional activity. With each brand uniquely positioned for their target customer segments and with both product and brand propositions established, the group will be well placed to grow revenue and profits through a more productive and expanded distribution network. The opportunity remains for the Bevilles network to grow in the value segment as the Michael Hill brand continues to optimize its store network, embed its elevated brand proposition, and attract new target customers. Over the next 12 months, the group's primary focus is on margin recovery and building a strong foundation for sustainable growth, underpinned by the following three key strategic priorities.
Firstly, embedding the repositioning of the Michael Hill brand across all markets. The business will continue focusing on repositioning the Michael Hill brand across all markets with our product and our people as the key enablers. Product newness and quality are the cornerstone of aspirational brand positioning. As an example, the business is introducing a new Canadian diamond range, which is ethically sourced and renowned for their exceptional quality. This will further bolster our Canadian segment. Along with our standard cadence of product newness, the business will maintain its focus on margin-enhancing product initiatives. Our people are called to our business, and the continual investment in development, upskilling, and training is an important lever to ensure our people align with the repositioned Michael Hill brand. It is particularly important that our people have in-depth product knowledge to guide our customers with their milestone moment purchases.
Secondly, an internal strategic review of New Zealand to improve performance. Our New Zealand segment has suffered due to the economic downturn in New Zealand. An internal strategic review has commenced to ensure our New Zealand business is well placed to dominate the jewelry market as the economy recovers. Thirdly, reinforce retail fundamentals, brand identity, and awareness of the Bevilles brand in preparation for expansion. Since acquisition, the Bevilles business has undergone a significant transformation as it expanded into a new territory of Queensland, opened 12 stores, transitioned to new IT systems, and relocated its head office and distribution center to Brisbane alongside the Michael Hill head office. The Bevilles business is now focused on instilling core retail fundamentals with the team, articulating a clear brand identity to our customers, and continuing to create brand awareness through highly engaging marketing.
Furthermore, the team have focused on reestablishing the brand's dominance in its core and everyday value product offering, with a more productive and streamlined product range to increase disruption in the value jewelry segment. That has brought us to the end of our formal presentation. I would like to thank you all for your continued interest in Michael Hill, and we are now happy to take any questions.
Thanks, Andrew. If you have not yet joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating that your microphone is live. Our first question comes from Kieran Carling of Craigs Investment Partners. Kieran, please go ahead.
Morning, Andrew. Thanks for the presentation. First question is just on sales run rates across the group.
We saw all divisions soften between Q1 and Q2, and now there appears to be some pickup in early Q3. Can you just comment on what has driven the recent improvement in sales and then I guess how confident you are that sales across the group will remain positive through the second half?
Yeah, thanks, Kieran. Good morning. Look, I think, and we spoke on this as part of our January trade release. We mentioned in the presentation today around October and November being more challenging as we're comping prior year record sales in those months, but we did start to see that sales recovery in December. I think what we've then continued into January, February is effectively a continuation of that momentum. I think hopefully in Australia last week, we saw our first interest rate cut in decades, Kieran, in a couple of years.
New Zealand with a further 50 basis points, the expectation there could be a couple of smaller cuts still to come in New Zealand. I think we're starting just, I guess, to see those green shoots of recovery, particularly in New Zealand now. We've already seen that in Australia. Meanwhile, Canada just keeps on performing as Canada has been, growth on two, three record years in a row. As to the certainty of continued performance, I think we'd all like to think those green shoots do give us a sense of momentum and opportunity, but I think as the last 12 months have taught us the next 12 months, the recovery that we expect, I guess the uncertainty just remains on just how, just when and just how quickly things come back. I think we're just going to keep on trading the way we have been.
Cool, thank you. And then just looking at your store count, I mean, there's been another seven stores closed in Australia, two in Canada through the first half, and that Bevilles rollout is obviously slowing. Two questions on that. What is driving the increased rate of store closures, and how confident are you that expanding Bevilles is the right move going forward, given that the Michael Hill rollout was clearly overdone?
Yeah, good questions, Kieran. I think from an Australian point of view, we've signaled strongly that we were over-networked, and you've just alluded to it from a Michael Hill point of view. Just noting, while there were those closures in the network, sales in Australia were still up. Supported by our website and e-commerce, brand awareness and the like, we are still seeing that sales growth without the intensity of store distribution.
Will there be some more closures to come in Australia? Yes, there will be. Not a significant number, but I think also just clocking that any Australian store that closes is a negative EBIT store, typically in an environment that's either concentrated or not trading as well. You are right, the Bevilles expansion has slowed. We're being very considered and very deliberate in our choice of sites with Bevilles. I think you alluded to it. Did Michael Hill perhaps under prior management grow too quickly, too big? Yes, and we're being very careful not to repeat that. For a Bevilles store to be opened, I guess on our watch, it needs to meet a very sort of strict investment criteria around that. Equally, the flips provide an opportunity.
Fair to say with landlords, we've got deep relationships, but in the current economic environments, it's still hard to secure the sites of right and I guess the right economics around the store in terms of contribution and the like.
Cool, thank you. The last one is just on your initiatives to improve margins, which has obviously been to pivot towards cheaper lab-grown pendant and silver jewelry. Are you viewing this as a short-term strategy to boost margins while input costs are high, or is it more of a structural pivot?
I think it's quite tactical. I think we'll always be a house of diamonds, and we have a strong representation both in mined and lab. Lab is a stronger margin, and the new lab that we have coming is stronger margin still.
We see lab as the fifth C as choice, and there is a consumer, whether motivated by the presentation of the diamond or by its green sustainable origins, there is a market there for lab, and we're participating in that very carefully. I don't think it's a pivot, but it's responding to, I guess, consumer demand and interest. It is not structural change, it's just a shifting of the mix within our diamond offering. I think on the Pendant Bar, we always have a lower price point offering that's targeting that newer customer, more frequent customer purchase with frequency of fashion and particularly self-gifting. I think Pendant Bar provides a really unique customer-friendly way of presenting that that isn't common across the market. I don't think it's a short-term pivot, but more us responding with product mix and innovation to meet consumer demand. Sorry, Kieran.
Lumi, are you still there?
Kieran, we seem to have lost Kieran. Kieran, can you hear me?
Yes, I can still hear you.
Perfect.
I think there was just one additional part of the question.
Sorry, we did not hear your additional part of the question here. Sorry, if you could please repeat.
Oh, sorry. It was just around, do you think that the gross margin on lab-grown diamonds is unsustainably high at the moment?
I do not think unsustainably. We have had two iterations now of our lab offering, our newer offering that we are introducing, better color, better clarity, at a better margin. The customer is winning and we are winning. There comes a point where lab diamonds, while being produced more cheaply, do stabilize. I think that position will be reached. There has been a lot of consolidation in the industry.
There's a lot of disruption in the mined diamond environment at the moment with De Beers, significant impairment announced by Anglo on De Beers last week. I think margins, that gap, I think, between lab and mined diamond, that margin gap will maintain, but there'll be movements within, I think, both markets.
Okay. Thank you. That's all from me.
Cheers. Thanks, Kieran.
Our next question comes from Guy Hooper from Jarden. Guy, please go ahead.
Yeah, thanks. Morning, Andrew. Just, I guess, carrying on on gross margin, given the COGS, headwinds, and the promotional activity that you've seen through the holiday period, can you give us a sense of margin direction through the trading update and maybe the run rates or momentum that you're seeing from a gross margin point of view?
Yeah, thanks, Guy. Good morning. I think from a margin point of view, we've been clear previously, and I'll use round numbers here, but broadly, margins peaked at about the 64 mark post-COVID. We did see that dip over the last 12-18 months. You've touched on the two main drivers for the level of promotional activity and then just the input costs, and by that, both diamonds and gold. Gold's at an all-time high, AUD 3,000 an ounce, sort of plateauing at that sort of 60 point. I think going into this financial year, we've been clear that we'd be seeking to restore that prior highs of margin, but we're clear that we wouldn't get there in one year. The intention being to try and pull that back, pull it halfway, so sort of to 62. Look, have we quite got there? No.
I do not think any of us anticipated gold quite reaching the heights that it did, and equally, just that level of promotional activity. I would like to think that certainly the momentum has shifted back to margin growth and that we can continue with that, and particularly some of the tactical introductions of product and margin that we alluded to with Kieran and in the announcement to support that journey back. I guess on the product side, I think on the promotional side, a desire to, I guess, to the extent we can, pull back on the intensity of that promotional activity.
Okay. Yeah, I guess maybe to pick up on that and some of Kieran's comments as well. How should we think about the impact on gross profit dollar as you are seeing those lower selling price products perform particularly well?
Yeah. Look, we still have a very high ATV even with that lower selling product. I think we're just going to be careful. The Pendant Bar is a repackaging of lower price point product that we were selling in any case. The way we've done it and its appeal, it's worked brilliantly. We're lying sell-through entirely at Christmas, which is what you actually want as a retailer. I think we've repackaged up some of that lower price product. It is at a high margin, silver, silver and lab being the highest sort of margin products that we sell. I think, look, there is always a constant trade-off on sales and margin, and we work very hard, and the retail leaders trade very hard to, I guess, hold that balance, that fine balance appropriately.
I think we've got a confidence, though, in bringing margin back, but without, I guess, not to the detriment of sales.
Okay. And on lab, I mean, historically, we've always thought about Michael Hill as being roughly a third sort of engagement. I mean, can you give us a sense of how big lab is within engagement and just whether or not you're seeing consumers who are choosing lab? Are they trading down in terms of sales price, or are they spending a similar amount and just getting a much bigger lab diamond?
You're very proud to wear a guy, and if you need a diamond, let us know. I think you're right. So the consumer isn't trading down in terms of if they walked in thinking they might buy a one-carat mine, they're not picking up a one-carat lab at a lower price.
The trend that we're seeing is a willingness to buy the three or the four, typically the three-carat, which is maintaining that price point, but at a significant margin lift. I think behaviourally, that's what we're seeing. In terms of what lab represents in our business, you're right. Our business very broadly is a third engagement or bridal, a third self-gifting or self-purchasing, sorry, and then a third gifting. I think within bridal, we've been very careful just to manage the uptake and how much of lab we present. There are instances in the U.S. where some of the jewelry retailers move to 75-80% lab, and I think there's got to be some caution there. I guess almost to Kieran's point of view, before things change on lab, we've got to be careful that we're not over-invested in lab.
For us, lab sort of any given week or month hovers between that, I think, 10-15%. In bridal, there is still that very much that, I guess, heritage demand for mined. Lab is having a role in bridal, but it's also having a role in diamond fashion. So necklace, tennis bracelet, earring. Back to your point, Guy, getting a bigger diamond for a similar price in that context as well.
Okay. Thank you for the color there. Just one last question for me. Conducting a review of New Zealand business, I mean, what are you sort of expecting to discover there? I acknowledge it has been weaker. Is there something else we need to read into it beyond the economic impacts of driving the New Zealand softness?
No, not really. I think we, as a management team and as a board, and we've spent time on this in the last week ahead of this result, have acknowledged that the economic situation in New Zealand hasn't been a quick cycle. We've had two really challenging years, and we're really actually pleased with the seven weeks in New Zealand coming back to - 2%. You could almost round it to flat, but that's still down 2% on two challenging years. Things haven't suddenly turned. One of our other analysts has referred to it as a slow recovery grind in New Zealand. I think a lot of New Zealand retailers, not just in jewelry, just broadly by making a statement, would like to think they've traded the trough and are coming out.
I think we're just trying to make sure we're as well positioned as we can as we come out of that and cycle turns in New Zealand that we're well positioned to capitalise on that.
Awesome. Thanks for taking the questions.
Thanks, Guy. Thank you.
Our next question is from Cade Mannigan of Evans and Partners. Cade, please go ahead.
Morning, Andrew. Thanks for the questions. Given, I think we've touched on gross margin pretty well this morning, maybe a bit on the cost space. On the cost reduction program you started in January, any color you can provide about different areas of the business that will be captured in that? Just trying to think about how it will flow through to FY2026 as well. Thanks.
Yep. Sure. Thanks, Cade. Good morning. Look, different areas of focus, I guess.
Some of it around labor and structure will take time to analyze through. Where we've taken steps to streamline or restructure, that will take as month by month, that will start to build. There are aspects of our business that are very fixed costs, so lease and retail labor. There is a piece around in-store labor efficiency. That's not about roles. It's just about, I guess, the effectiveness of our rostering, and we've got some great tools that support that. In terms of other areas of focus, it is really around, I guess, the levers around discretionary spend. Your usual core areas of discretionary spend, but also in that context, just marketing spend and ensuring that we've tailored our, I guess, our disciplined or rationed marketing spend to the right channels in each market and being very, I guess, careful around how we deploy those funds.
Okay. That's helpful. Thanks. Maybe just as well, how are lease renewals and landlord discussions going at present? I saw there was a bit of growth in the occupancy cost in the half despite the reduced store base.
Yeah. I don't know if there's any landlords on the call, but let me answer your question very objectively. I think we've come off a period of high CPI and high inflation, so leases just naturally have been indexing in all three countries at a higher rate than usual. New Zealand for us, typically and structurally, is the lowest rental environment. It's just a different market for us. The bigger landlord players in Australia and in Canada.
I think you might think on the face of it, I guess, with the stress on retail and the number of closures across other retailers that we've seen, that landlords would be highly supportive and encouraging. It seems that's not necessarily always the case. I think our market intel tells us that landlords are looking to maintain their profit margins just as much as we're trying to manage our leases. We've very carefully made sure we have not got too many leases that are overcommitted where we do want to have the ability to revisit and reset. It does mean we've got a portion of stores and holdover , so that does let us have very constructive discussions with our landlord partners. I guess every landlord, I think we've got about 100 landlords across the world.
Every landlord conversation is different, and it will depend on, I guess, the status of the particular centre or the particular portfolio. I think to properly answer your question, it is very challenging for any retailer renewing at the moment. The landlords are looking to hold margin and preserve their returns.
Okay. Thanks for that. Sorry, maybe one just final one on the trading update as well. In the half, you talked about the aggressive retail trading conditions that you saw. Maybe how did that sort of flow through the half, and then has it sort of continued into early 2 H25 from what you've been seeing so far too? Thank you.
Yep. Look, I think so Black Friday, I think I'll talk to that mainly, was a week different in its scheduling this year, which did distort things.
The behaviors that we saw in every market were people breaking very early to go into Black Friday and then actually coming out of Black Friday very quickly. There were instances of people going into Boxing Day, and we had not even made it to the Black Friday. I think that activity around Black Friday and what we call November, so that blended period of gifting right through November and December, just that prevalence of promotional activity across all retail. Other notable retailers that we follow, I will not name them, but that we follow that are in a parallel fashion, what have you, that would normally be very reticent to promote, certainly have, and they have seen the margin decline. I think it was, I guess, a market-wide, industry-wide response, and then within the jewelry category to go heavier into promotion through that November period.
Into the new year, we've certainly made an effort to be really measured and disciplined in our promotional activity and do it in a very targeted and considered way. I think we probably are seeing some lightening up on promotional activity. It is a less promotional period. January is a bit of a sales sort of month. For us, Valentine's in February is a significant moment that we look to leverage, and not all retailers will be doing that in February. I think we'd like to think that the promotional sort of peak, if you like, has come and passed and that we can manage our way through these months as we move then into, I guess, the next significant moment of Mother's Day in May, then through June, typically clearance and sales month as well.
Excellent. Thanks very much for that, Andrew.
Thanks, Cade.
Thank you. There are no further questions. I'll now hand back over to Andrew for some closing remarks.
Thank you, Lumi, and thank you all for your continued interest in Michael Hill, and we'll close the call accordingly. Thank you.