As revealed by more and more media publications, the recurring trend in the diamond revolution among Gen-Zs and Millennials revolves on their reluctance to drop big money on diamond jewelleries, considering high costs of living and other financial pressures. With this, jewellery companies like Michael Hill International (ASX: MHJ) had to do its best to follow the market to stay relevant in the long run.
This will not include putting Michael Hill diamonds on a massive discount, instead the Company opted to branch out by acquiring Bevilles, a family owned Australian jewellery and watch retailer for $45.1 million. Consideration will consist of cash upfront and earn-out payments over two years with a minimum payment floor of $1m.
The transaction is expected to be immediately earnings per share (EPS) accretive, and will add about $7m to $8m of EBITDA to the business, and $60m to $65m of sales. This lands the potential of Michael Hill receiving more than $400m in annual turnover in Australia.
Any costs associated with the acquisition will be funded from existing cash reserves of Michael Hill and its undrawn debt facility, and is anticipated to settle in the current quarter. However, Bevilles CEO Michelle Stanton will stay on in a two-year ambassadorial arrangement to help with the transition, eventually allowing for the exit from her family business. The acquisition is also subject to the satisfaction of certain conditions precedent such as regulatory approvals from the ACCC and Fair Work Commission, lease transfers, and more.
Having both brands complementary existing in the market would be a multi-branding strategy that elevates the Michael Hill brand, while maintaining shares in the different market segments the Bevilles offers. The Michael Hill brand can be pushed to the “premium” segment just as the brand had always aspired to do, focusing on lifetime moments and higher Average Transaction Value (ATV) primarily through diamond sales.
Meanwhile, Bevilles will cater to the “value/mid-market” market segment through selling lower ATV, highly transactional products that are at a more affordable price point such as coloured stones, metals, lab-grown diamonds and watches, allowing the Michael Hill Group to capture a broader, full spectrum customer base. The majority of Bevilles pricing sits below $500.
Commenting on the acquisition, Daniel Bracken, Michael Hill CEO and Managing Director said, “I am absolutely delighted to announce the acquisition of Bevilles; it is a highly complementary strategic fit for Michael Hill, and executes upon our well-flagged acquisition strategy.”
“Bevilles is a highly profitable business, with clearly defined market positioning and a talented and highly capable team. Expanding the store network in Australia represents an extremely exciting opportunity for the group, as the Michael Hill brand continues its journey to elevate into a more premium positioning.”
Michael Hill chairman Robert Fyfe added that the Bevilles acquisition “ticks many boxes” especially in a tougher economic climate with customers searching for value for money.
Bevilles itself is a family-owned jewellery and watch retailer at accessible prices. Since a material restructure of the business in 2014, Bevilles has achieved notable growth and profitability gained from the 26 stores that it operates Australia wide, along with investment in omni-channel distribution strategy such as launching a pure-play watch retail business, Watches Galore.
The two brands are not overlapping in online marketplaces and have distinct brand positioning and customer segments, in which the majority of Bevilles’ sales are from their gold and silver jewellery categories, whereas the majority of Michael Hill’s sales are from products within the diamond jewellery category, therefore resulting in minimal sales cannibalisation.
Michael Hill also sees this as an opportunity to integrate Bevilles’ 1.1m loyalty program members into the database of existing 1.8m members on the Michael Hill Loyalty Program. For most retailers, membership is a pivotal part of their profit strategy as members contribute more profit at a lower acquisition cost. Returning customers tend to be easier to sell to, and tend to spend a lot more money than new ones. Besides, 88% of Bevilles’ sales over the last twelve months came from loyalty members.
One underlying reason that supported the Bevilles acquisition is Michael Hill’s recent success on executing a share buy-back in the first half of FY23, in which it acquired 8.6m shares at a cost of $10.2m, representing 2.2% of share capital.
The first half of FY23 was a huge hit for Michael Hill, in which it delivered record revenue of $363.4m, up approximately $30m on the previous best first half in FY20, with 22 fewer stores. This was also a 11% increase compared to H1 FY22 operating revenue of $327.1m in H1 FY22. Comparable earnings before interest and tax (EBIT) also increased by 6% from $51.6m in H1 FY22 to $54.5m in H1 FY23. The Group declared an interim dividend of AU4.0 cents per share, compared to AU3.5 cents declared in H1 FY22.
Having invested in core inventory and deployed cash to support capital management initiatives, including higher dividends and the share buy-back program, the Company delivered a healthy closing cash position of $78.7m and nil debt by the end of the half.
Clara is a Business Reporter for The Sentiment.
Latest posts by Clara Venisha (see all)
- IPO Watch: The Australian Wealth Advisory Group set for ASX entrance - December 15, 2023
- Harris Technology gears up for Christmas as consumer electronics and household tipped to be among most popular purchases - November 27, 2023
- Linius Technologies sprints into the US college sports with automated game highlight technology - November 23, 2023
Leave a Comment
You must be logged in to post a comment.