Harvey Norman Holdings Limited (HVN) – Losing share

Harvey Norman Holdings Limited engages in the integrated retail, franchise, property, and digital system businesses. Various retail categories include electrical goods, furniture, computerised communications, bedding and Manchester, kitchen and small appliances, bathroom and tiles, and carpets and floorings. It operates under the Harvey Norman, Domayne, and Joyce Mayne brands.

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Harvey Norman delivered first-half FY25 earnings modestly above market expectations and declared an interim dividend above consensus forecasts. Profit margins in its dominant Australian franchise network also received a fillip, mainly from reduced depreciation charges on leases, while the property operations recorded robust earnings thanks to revaluations in the portfolio.

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Among its 122 international stores, which account for circa 22% of group profit before tax(excluding property valuations), Ireland and Asia (comprising stores in Malaysia and Singapore) posted strong increases in profit before tax, while earnings from stores in Croatia and Slovenia booked double-digit falls. A loss was also recorded in its early-stage UK business.

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We raised our target price on Harvey Norman to $4.50 from $4.40, but we cut our recommendation to Lighten from Hold on valuation grounds. We see better options elsewhere in the market to play the interest rate cycle and related rises in consumer spending, noting also that Harvey Norman continues to lose market share to JB Hi-Fi (JBH) and, increasingly, to the Wesfarmers (WES)-owned Officeworks chain in the technology space.

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