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Harveys closes stores, issues profit warning

In the first week of November Harvey Norman announced the closure of seven stores, placed three subsidiaries into administration, and warned the market to expect a poor first-half result after reporting a fall of almost 20 percent in pre-tax earnings for the first quarter.

Global sales from franchised outlets were $1.48 billion for the three months to the end of September, down 3.8 percent from the same period a year earlier, excluding new store openings, and following a 3.6 percent decline in comparable-store sales for the past financial year.

The investment in 25 Clive Peeters and Rick Hart outlets in July last year has proven to be a failure, losing Harvey Norman over $40 million in the 2011 fiscal year.  Seven of the stores purchased after the collapse of Clive Peeters will be closed. Of the remaining 18 stores, 16 will be converted to Harvey Norman outlets and two will be converted to Joyce Mayne livery.

The closure of the seven stores will result in a charge against pre-tax profit of around $10 million, according to Harvey Norman CFO, Chris Mentis.
The seven stores to be closed are the Clive Peeters stores in Bendigo, Dandenong, Thomastown and Malvern (Victoria); and the Rick Hart stores in Mandurah, O’Connor and Osborne Park (WA).

It appears that Harvey Norman has been able to legally (and financially) distance itself from some of the failing stores it owns by operating them out of subsidiary companies.

Three of these Harvey Norman subsidiaries – the O’Connor and Mandurah stores in WA and the Bendigo store in Victoria, have been handed over to the administrators since the announcement they would be closed.

Late last Friday Harvey Norman Holdings notified the Australian Securities Exchange that Sydney -based chartered accountant and liquidator, David Levi, is to act as administrator of the three wholly-owned subsidiaries.

But wait – there’s more!

Harvey Norman is now being pursued by landlords for failing to pay rent on the former Mandurah and Osborne Park outlets. One of landlords is property syndicate Primewest, headed by Alan Bond and his son, John!

(It’s worth noting that Alan Bond sacked Gerry Harvey when he took over Harvey’s 1980s’ retailing venture, Norman Ross.)

Gerry Harvey is reported as saying that the landlords were aware that the Harvey Norman subsidiaries ‘didn’t have the Harvey Norman guarantee on them’ when they signed the lease agreements.

Another of the WA landlords, prominent WA businessman Robert Wilde, told the Australian Financial Review: ‘I want Gerry Harvey to be made accountable for the commercial agreements he entered into with my company and that he pay the rent which he owes.

‘There is still a year left on this lease, about $250,000 worth, plus the cost of making good the premises.

‘How would Gerry Harvey like it if I went down to his Cottesloe store and removed $25,000 worth of goods every month without repaying it?’ he pondered.

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