Subsidiary repositioning costs Michael Hill

Emma and RoeMichael Hill International has advised that the repositioning of Emma & Roe and its exit from the US will drag earnings for the first half of fiscal 18 down over 60 per cent.

Ahead of its interim report to be released later this month, the jewellery retailer said on Thursday afternoon that earnings before interest and tax are now expected to be approximately $15 million for the six months ended 31 December, compared to the $40 million booked for HY17.

This includes $19.8 million in non-cash costs, split between $8.4 million in onerous lease provisions and $11.4 million in property, plant and equipment impairments.

Michael Hill CEO Phil Taylor announced a strategic repositioning of Emma & Roe alongside an exit from struggling US operations last month following several periods of lacklustre performance from both business segments.

While the company’s group revenue increased by 4.7 per cent in the first-half, same-store sales in the US declined by 10 per cent, while Emma & Roe booked a 5.4 per cent decline in same-store-sales, despite heavy investment driving a 20.1 per cent increase in top line revenue.

As part of the Emma & Roe repositioning as many as 30 stores could be closed and a trial period will be re-started for the brand, which is looking to position itself in the growing ‘demi-fine’ market segment.

Taylor said today that onerous lease costs associated with the Emma & Roe closures are subject to change in respect to cash costs due to the fact that negotiations with landlords are ongoing.

“Despite the one-off accounting impacts of store closures, the decisive actions taken to reduce the Emma & Roe store footprint and exit from the US are critical to strengthening the foundations of Michael Hill International as we focus on building significant long-term value in our core businesses across Australia, New Zealand and Canada,” Taylor said.

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