UPDATE: Harvey Norman Issues Profit Warning; Discounting, A$ Hit Margins

Electricals and furniture retailer Harvey Norman Holdings Ltd. (HVN.AU) said Thursday that it expects pretax profit for the nine months to March 31 to drop 25%, as discounting by competitors and a high Australian dollar hit margins.

Harvey Norman's statement follows a warning last week by electrical entertainment goods retailer JB Hi-Fi Ltd. (JBH.AU) that its net profit for fiscal 2012 was likely to be down as much as 8.8% on year.

Prices for electrical items such as flat screen televisions and computers in Australia have been pushed down as retailers seek to win market share with aggressive discounting and the high Australian dollar makes overseas imports cheaper. The sector is also undergoing rationalization with the WOW Sight & Sound chain collapsing and Australia's largest supermarket chain, Woolworths Ltd. (WOW.AU), closing stores in its Dick Smith chain as it seeks to sell off the division.

Harvey Norman said its unaudited preliminary accounts for the nine months to March 31 indicate pretax profit would be 204.8 million Australian dollars (US$211.2 million), down from A$272.3 million in the prior corresponding period. It said the profit results show the impact of aggressive competitor activity in the audio visual and information technology sector and that franchisee sales in the sector continue to be challenging.

"Technology categories continue to be affected by a decline in average selling price. This is attributable to the high Australian dollar and intense competitor activity," the company said.

Peter Esho, chief market analyst at City Index, told Dow Jones Newswires the profit warning looked "pretty horrible."

But he said investors had already priced in a low value for the business and the company's shares are supported by its property assets.

Shares in Harvey Norman fell after the profit warning and at 0550 GMT were down 1.9% at A$2.03.

Harvey Norman said that total global sales through its outlets in Australia, New Zealand, Slovenia, Croatia, Ireland and Northern Ireland were down 6.7% in the nine months to March 31 at A$4.39 billion.

It said global sales were negatively affected by a 5.9% deterioration in the euro, a 6.8% drop in the U.K. pound, but positively affected by a 0.9% appreciation in the New Zealand dollar.

-By Gavin Lower, Dow Jones Newswires; 61-3-9292-2095; [e-mail]