While tech companies around the world have been shedding jobs with mass layoffs following a turbulent year for tech, eCommerce company Harris Technology (ASX: HT8) tackled the challenging conditions head on and have come out on top following a strategic review.
As one of Australia’s high flyers during the pandemic, the online retailer thrived as Aussies transitioned to remote working which catapulted Harris Technology’s sales over $50 million in FY22. As lockdowns were lifted however, Harris Technology saw a pull back in sales which resulted in excessive inventory, a trend also witnessed by its pure-play online peers.
Moving while he still had options, CEO Garrison Huang undertook a strategic review that concluded in July 2022, of more than 15,000 tech products stocked by Harris Technology. The review resulted in the decision to axe underperforming brands, and those that were subject to excessive discounting as other tech retailers were desperate to sell overstocked tech products.
For Huang, he knew the cull would have an impact on Harris Technology’s record revenue, but it would also better position the Company for long-term profitability due to the costs associated with ageing tech stock, which loses value as newer tech is released.
Despite the reduction in demand for tech products, which has also been affected by a reduction in discretionary spending in response to rising interest rates, Harris Technology has substantially reduced its inventory over the past 12 months. The inventory initiatives inflected Harris Technology into positive cash flow in the December FY23 quarter.
Generating $7.1 million in sales for the quarter, Harris Technology reported positive operating cash flow of $1.3 million. The strong quarter enabled the retailer to pay down $400k in its finance facility, resulting in total positive cash flow of $900k for the quarter.
“Whilst trading continues to be challenging, it has been pleasing that we were able to deliver $0.9M positive cash flow during the holiday season,” said Huang.
“Most of the overstocked products from the peak of the pandemic have now been cleared. This will enable our team to focus on the higher-margin product categories that are less prone to excessive discounting across the wider retail sector.”
The $1.3M positive operating cash flow continues the strong momentum built over the past two quarters which were both cash flow breakeven, while Huang focused on reducing inventory without selling products below cost.
As of 31 December 2022, the Company held $6.2 million in inventory. That figure included $4.9 million used in the quarter to acquire newer stock that can be sold at a higher margin. It was a stark improvement for Harris Technology which was carrying $12.9 million a year ago.
Key to the turnaround has been the strategic review which concluded six months ago to reduce the product range with a focus on high-margin products. Included in the review was an opportunity to expand into household products beyond just those found in offices.
The household products category contributed $700k revenue in the December quarter. Products can typically be sold with margins upwards of 40% and are less volatile to demand since they are found in all households.
Huang concedes that the turnaround from the pandemic backend is still not over, but is confident that the stronger margin mix across the Harris Technology inventory has the Company back on track towards long-term profitability.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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