The founder of Michael Hill International (ASX: MHJ) has previously said the jewellery industry usually does better in poor times, but that was not the case in the recent December half as weak economic conditions in New Zealand negatively impacted sales and group earnings fell by at least 23 per cent.

The group is forecasting comparable EBIT of $22.5-24 million for the period, down from $31.3 million in the December half of 2023.

New Zealand is Michael Hill's smallest market, but a 7.8 per cent sales drop across the Tasman Sea more than offset record sales in Canada and a marginal increase in Australia, tipping down group sales by 1 per cent to $359.1 million.

The decline is lower than a 2 per cent drop in the group's total store count across the group's Michael Hill and Bevilles brands, as seven Michael Hill locations in Australia and two in Canada were shuttered, whilst one new store was opened in New Zealand.

Since the start of 2023 the number of Michael Hill stores has dropped from 282 to 256, but its total footprint has risen since then following the $45 million acquisition of jewellery and watch retailer Bevilles in April 2023.

When Michael Hill struck a deal to buy Bevilles the target company had 26 stores to its name - a figure that has since risen to 38, of which two were added in the second six months of 2024.

"Whilst we are disappointed with our overall sales result for the half, the business was comping record prior year sales in both October and November, with eight fewer stores," managing director and CEO Daniel Bracken said in a release after the market closed yesterday.

"The flat sales for the half reflected strong business performance in the first three months, offsetting the more challenging trading conditions at the beginning of the second quarter.

"The strong performance trend that we observed in the first three months of the half has re-emerged through December and January.

Bracken also pointed to the launch of new product initiatives, including expansion of Michael Hill's lab-grown diamond LAB collection, as well as the introduction of a "Pendant Bar" where customers "build their own personalised bracelet and necklace combinations, which are perfect for gifting".

These developments come as others find growth opportunities in the industry, including Melbourne-based offline-to-online retailer Cullen Jewellery which exclusively focuses on lab-grown diamonds with expertise in tailor-made pieces. The company saw a huge lift in its staff base to 107 to build the capacity for rapid growth in demand. From a purely staffing perspective, the upstart challenger is roughly 26 times smaller than Michael Hill.

Michael Hill International may have struggled with sales and earnings of late, but the group highlights targeted initiatives aimed at $5 million in cost reductions, while it has reduced capital expenditure across both technology and stores, and cut net debt down by a sixth to $10 million.

"As always, I’m very proud of our team for their retail execution, determination and resilience during an incredibly tough trading environment," says Bracken.

"The business is clear on its strategic priorities and is increasingly well-positioned for when the economic cycle recovers.

"And pleasingly, the first few weeks of January are very encouraging with signs of strong positive sales momentum, particularly in Canada."

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