Harris Technology hits inventory reduction milestones, household sales ramping up

Aussies might tighten their belts as the cost of living continues to hike, but there are certain items they can’t (and won’t) stop buying, even when the budget is tight. To name a few; household goods like cleaning supplies, car care, or stationary are essential to all households and driving profits for eCommerce company Harris Technology (ASX: HT8) while its flagship tech products are going through a seasonal lull.

For the Half Year ended 31 December 2022, Harris Technology reported $1.3m positive operating cash flow, a $3.1m turnaround on the previous Half Year. This was generated from $15.4m sales revenue.

Although revenue was down on last year ($28.5m), it was instigated by the Company’s strategic review concluded in July 2022, of more than 15,000 tech products stocked by Harris Technology.

The review phased out underperforming low-margin brands which are no longer replenished. According to CEO Garrison Huang, it better positioned the Company for long-term profitability due to the write downs associated with aging tech stock which loses value as newer tech is released.

In clearing this aging stock, the Company reduced its inventory holding by 38% from $9.8m on 30 June 2022 to $6m as of 31 December 2022. This was a stark improvement considering a year prior it carried $12.9m worth of inventory.

“It was pleasing to see the impact of our strategic review towards the second half of H1 FY23 where we were able to reach our inventory targets by clearing aged stock and driving sales of higher-margin products,” said Huang.

“We will continue to preserve cash flow without relying on borrowings or raising capital while we increase the volume of Household products which continue to sell well at a time where demand for tech products has stalled.

“Looking ahead to the remainder of FY23, Harris Technology will continue to operate as a lean organisation while tempering our customer acquisition spending to maintain higher margins on products sold.“

Harris Technology has expanded the number of marketplaces where its products are listed

including Woolworths, Bunnings, Mosaic Brands and Lasoo, in addition to the other majors such as Amazon, eBay, Kogan, Catch, and its own website HT.com.au. Further entry into new marketplaces is planned over the next 12 months.

The Company aims to improve its margins overall by having more diversified sales channels and being more selective on which marketplaces it chooses to compete with certain products in.

The Board is not expecting substantial revenue growth for the remainder of FY23, but improved margin mix is expected to reduce the impact of difficult trading conditions for the retail sector that is also impacting fellow consumer goods and electronic retailers, including big players like Amazon and Kogan. To combat the lull in the online retailing industry, the Company had a proactive focus on higher margin products that are driving the Company’s positive cash flow.

With these higher margin products, Harris Technology experienced positive momentum, especially in the Household category where sales continue to increase whilst carrying minimal inventory. As cost of living pressures increase, customers are favouring non-discretionary low-priced consumables that represent great value compared to discretionary products, so Harris Technology’s household goods division remains steadfast at times when the electronic divisions stalled.

Harris Technology did not segment sales margins between their tech and household products but as a comparison, other ASX-listed household goods retailers reported margins circa 40% on the category.