By Frank Newman on 25th December 2018
2018 has been a good year for local property investors. Property values have continued to increase while interest rates remain at very low levels. There are no signs that this will change in the year ahead and I personally remain confident about the longer term prospects for our region, despite overly restrictive council planning laws preventing land from being put to its best use.
The provinces are still benefiting from the Great Auckland Escape with many more people now choosing to live in places that offer a better lifestyle and work remotely.
One company that has its roots in Whangarei has not had a good year. Michael Hill’s share price says it all, losing half of its value in the last 52 weeks from $1.33 to 66 cents. Most of that fall was in October when it announced that its strategy to move away from discount-based pricing had not worked, and sales had declined.
Michael Hill opened his first jewellery store in Whangarei in 1979. His then unconventional retail format and heavy price discounting had bargain hunters queuing up on opening day. On at least one occasion, the Police were required to maintain order! Imagine that, people queuing at your door to spend money!
The company listed on the stock exchange in 1987 at a time when it had just six stores. It now has 306 stores in NZ, Australia, and Canada. It had ventured into the US but has since retreated from that after sustaining losses from the operation. It has closed its sister chain of stores called Emma Rose, which stocked a lower priced range.
It the last month or so it appointed Daniel Bracken as the new Chief Executive Officer, taking over the role from Phil Taylor who had been in the job for only two years. The new CEO is the first to be appointed from outside of the Company. His task is reported to be to “modernise” the company by turning it into a “contemporary” retailer and improve the Company’s share price. He is now undertaking an orientation tour of the stores, but has had time to appoint a new “Chief People Officer” to help the company “focus on both change management and capability”.
The Company turns 40 in 2019. Michael Hill is now Sir Michael and lives in Arrowtown on the Hills golf course rather than the hills at Whangarei Heads. It is unclear how much influence he has on the company these days. He passed the chairmanship of the Company onto his daughter, Emma, but remains a Non-Executive Director. He and his wife Christine continue to be the Company’s largest shareholder so no doubt they will be as keen as any shareholder to see investor confidence return.
Michael Hill’s story is an inspirational example of what locals can do if they have vision and dream big. I think it is also a very good example of how companies evolve or devolve as they succeed. I can’t help but feel that for some companies, success itself is the seed of failure.
Michael Hill was incredibly successful at transforming what had been a pretentious high-brow industry (i.e. a bit up itself). His heavy discounting, low price points, and innovative advertising shook the industry and he quickly gained market share from ma and pa operators.
It appears that the Company’s new generation of decision makers may have lost sight of the very things that made it successful, as the PR commentary coming out from the company these days appears to be more akin to that emanating from the PR departments of politicians who have their thoughts and comments manicured, massaged, and filtered by a team press secretaries.
It will be a testing year for the company and the new CEO, more so because the media is starting to give it negative press it previously didn’t have. No doubt that will be countered by a charm offensive so we are likely to see a series of PR stories coming from the Company.
The real test will be in the numbers and not the narrative. Talk is easy but numbers don’t lie and those who understand the language of numbers will soon see if the new CEO has been able to return the company to its glory days. The best way for a company to improve its share price is to improve its earnings per share and show consistent growth.
The only thing the new CEO really needs to focus in on is the top line – same store sales this year compared to last year. The rest of the numbers will follow and once the numbers turn up the share price will head skyward and Sir Michael and all of the other shareholders who continue to have faith in the Company will have a happy 2019. As a bystander with no financial interest in the company, it will be interesting to watch the share price and see whether it’s more than 66 cents this time next year.