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Michael Hill shares jump 7% after 1H profit rises 46%

Michael Hill International shares jumped as much as 7 percent after the jewellery chain posted a 46 percent rise in first-half profit.

The company's stock advanced 8 cents to a two-month high of $1.23 and recently traded at $1.19. Brisbane-based Michael Hill said profit rose to A$23.7 million in the six months ended Dec. 31, from A$16.2 million in the year earlier period. Revenue increased 4.6 percent to A$283.2 million.

Michael Hill's Australian unit, which accounts for about 60 percent of revenue, posted an 8.6 percent increase in earnings to A$31.5 million even as sales at its 166 stores dropped 1.9 percent to A$168.5 million. Australia's economic growth has slowed as prices for the country's commodity exports, such as iron ore, have dropped, weighing on consumer confidence.

"I was very impressed with the improved result from the Australian segments of the company," said Grant Williamson, a director of Hamilton Hindin Greene. "Retail in Australia is pretty depressed at the moment but Michael Hill have done extremely well."

Retailers have had mixed results over the period. Shares in outdoor clothing and equipment retailer Kathmandu Holdings slumped earlier this month after the company said it expected to post a first-half loss following poor trading, while Warehouse Group said its first-half profit would probably decline about 20 percent on weaker-than-expected sales. Meantime clothing retailer Hallenstein Glasson said its first half earnings would probably rise by a third.

"Michael Hill was one of the star performers in the retail sector at the current time," said Hamilton's Williamson. "The outlook is still extremely positive for a company that's shown it can grow in good economic times and bad."

In New Zealand, Michael Hill's operating surplus rose 13 percent to $14 million as revenue advanced 3.8 percent to $63.2 million. The number of stores remained unchanged at 52.

Meanwhile in Canada, the company opened six new stores during the period and closed one, taking total stores in the country to 59, which it said gave it critical mass, allowing increased marketing spend and brand awareness. Its Canadian unit posted an 80 percent gain in its operating surplus to C$5.2 million as revenue rose 18 percent to C$44.9 million.

The company's US business posted an operating loss of US$565,000 in the first half, from a loss of US$559,000 in the year earlier period. Revenue increased 18 percent to US$5.9 million.

Michael Hill said it will open two stores in the US in the second half of its financial year, taking the total to eight, as it is encouraged by its trial operations in the market.

It will pay a 2.5 cents a share dividend on April 2, unchanged from the year earlier period.

The company said it plans to undertake "significant investment" in the second half of its financial year as it repositions its brand.

It didn't detail the performance of its eight new Emma & Roe branded stores, which aim to generate a higher frequency of purchase with lower value items, because it says it is still testing the concept.

Michael Hill shares are rated a 'buy' according to the consensus of three analysts polled by Reuters.

The company said it remains in dispute with New Zealand tax authorities regarding its financing arrangements between New Zealand and Australia through 2009 to 2013 when it claimed tax deductions of $31 million. It said talks are continuing within the IRD's dispute process framework, and it considers it "increasingly likely" that the issue will require formal resolution through the courts.