Michael Hill: PBT collapsed 90.9% and a second-half loss wiped out H1 earnings

What changed

Revenue edged up 2.5% to NZD 643.7m, but earnings collapsed. PBT fell 90.9% to NZD 2.2m from NZD 24.0m, and NPAT fell 86.6% to NZD 2.1m from NZD 15.7m. Operating cash flow slipped 11.2% to NZD 55.1m, while capex almost halved to NZD 8.8m from NZD 18.1m, lifting free cash flow pre-lease to NZD 46.3m from NZD 43.9m. Despite that, cash on the balance sheet fell NZD 22.0m to NZD 10.2m and gross borrowings rose 73.7% to NZD 52.1m, taking the group from net cash of NZD 2.3m to net debt of NZD 41.9m. No interim and no final dividend were declared for FY25, versus a 3.0 cps total in FY24.

What matters

• Second-half collapse. HY25 NPAT was NZD 16.9m, so the implied H2 result is a loss of roughly NZD 14.8m. H2 operating cash flow was also negative by around NZD 2.6m against HY25's NZD 57.7m inflow. The full-year 2.5% revenue gain masks a materially weaker second half.
• Leverage reset. The NZD 44.1m swing into net debt, against NZD 170.6m of equity (down 8.9%), is the most concrete balance-sheet consequence. ROE fell to 1.2% from 8.4%.
• PBT is the cleaner read. The effective tax rate was 4.3% versus 34.7% in FY24, flattering NPAT. On a pre-tax basis, earnings fell 90.9%, not 86.6%, and the tax relief is unlikely to repeat at that magnitude.

Expectations

No quantitative FY25 target, guidance, or forward-work indicator was disclosed in the supplied excerpts, so the result cannot be benchmarked to management commitments. The HY25 release flagged 9.5% NPAT growth and referenced an expanded seasonal debt facility for Christmas trade; the FY25 outcome indicates the post-Christmas period did not deliver on that first-half shape. The omission of both interim and final dividends — versus a 1.75 cps interim in FY24 — is the clearest signal from the release about board confidence in near-term earnings.

Quality of result

The headline cash story is mixed. Free cash flow pre-lease improved to NZD 46.3m, but most of that gain came from capex being cut by NZD 9.3m, not from better operating performance. Inventory days improved modestly to 112.9 from 118.5 and trade receivable intensity remains very low at roughly 2 days, so the working-capital picture is not the source of the earnings decline. Instead, the PBT drop of NZD 21.8m against only a NZD 15.9m revenue gain points to gross margin and/or cost-base deterioration in H2 that the extraction does not quantify. The low effective tax rate is the main reason NPAT looks less bad than PBT; that is a timing and accounting feature, not durable earnings support.

Unresolved

• What drove the H2 swing to a loss — gross margin compression, store-level operating deleverage, impairment, or one-off charges — is not visible in the supplied excerpts.
• Why the effective tax rate collapsed to 4.3%, and whether that reflects recognised tax assets or jurisdictional mix, is unexplained.
• The NZD 22.1m increase in bank loans alongside a NZD 22.0m fall in cash is not reconciled to specific uses (working capital, lease payments, store investment, or shareholder returns).
• No segment disclosure was provided, so the geographic split between Australia, New Zealand, Canada and the Bevilles contribution cannot be assessed.
• No FY26 guidance, like-for-like sales cadence, or cost-out programme is referenced in the extracted material.

This briefing cannot assess gross margin, segment performance, or the specific drivers of the H2 earnings reversal because those disclosures were not included in the supplied extraction.

Key metrics

Analytical metrics

This analysis was generated using Annolyse, an AI-powered tool that analyses NZX company announcements. The analysis is based on available company filings and standard Annolyse calculations. This is general information only and does not constitute financial advice. The analysis may contain errors. Always read the original company filings and consult a licensed financial adviser before making investment decisions.