Michael Hill Charts 10% EBIT Margin Target with AI and Brand Focus

Sustained Sales Momentum and Margin Stability

Michael Hill International (ASX/NZX:MHJ) reported a 3.8% increase in total sales for FY26 Q3, with group same-store sales rising 4.6% year-on-year. The Canadian segment led the charge with an 11.3% lift, followed by New Zealand at 7.1%, and Australia at 5.5%. Gross margins held broadly flat to last year, reflecting effective management of commodity price volatility. These results build on the strong half-year performance, confirming early signs that the company’s strategic framework is gaining traction.

This follows Michael Hill’s recent 29% EBIT boost amid sales growth where the group demonstrated operational discipline and improved cash flow, setting the stage for the current momentum.

Brand Portfolio Simplification and Bevilles Reset

The group has aggressively simplified its brand portfolio, trimming from five brands to a focused two-brand strategy centred on Michael Hill and Bevilles within Australia. This move aims to reduce complexity and sharpen market positioning, especially as Bevilles undergoes a strategic reset. Acquired in 2023, Bevilles experienced strategic drift with expansion and product range broadening that diluted its value proposition. The reset has refocused Bevilles on clear value positioning, product clarity, and commercial discipline.

Early trading metrics show Bevilles is stabilising, with improvements in same-store sales and gross profit margins. The reset follows a disciplined stage-gate investment approach, where expansion will only proceed upon proven sustained profitability and return on capital. This cautious stance is crucial given the brand’s previous underperformance and the competitive Australian jewellery market.

AI-Powered Retail and Product Innovation

Michael Hill is positioning itself as an AI-powered retailer, embedding intelligence across merchandising, inventory, sales, and customer engagement. This digital transformation supports more agile inventory management, faster product testing, and enhanced customer personalisation. The company is scaling bespoke and custom jewellery services, tapping into growing customer demand for personalised experiences, particularly in bridal and premium segments.

Product innovation focuses on key growth categories such as men’s jewellery, basics, bridal, and watches, with a dual emphasis on premium lab-grown diamonds and natural diamonds to capture different market segments. The design philosophy balances quality, durability, and value, helping protect margins amid metal price fluctuations.

Financial Discipline and Capital Allocation

Michael Hill’s financial framework targets an EBIT margin of 10%, driven by four value multipliers: improved store productivity, diversified revenue growth, gross profit improvement, and operating leverage. The group maintains a strong balance sheet with disciplined inventory management and a refinanced $90 million debt facility on improved terms.

The board intends to resume dividends at the FY26 full-year results, subject to trading conditions, reflecting confidence in sustainable cash flow generation. This disciplined capital allocation balances sustaining growth capital, shareholder returns, and selective investment in growth opportunities.

Market Positioning Across Australia, Canada, and New Zealand

Australia remains the core engine with 158 stores, focusing on productivity over footprint and expanding the customer base through premium and mid-market segments. Canada, with 81 stores, is the key growth market, targeting network expansion and brand awareness in high-traffic malls. New Zealand’s 43 stores represent the mature market segment, with priorities on defending leadership and operational excellence.

Digital sales growth outpaces total sales growth, especially in Canada and Australia, with most online sales fulfilled via Click & Collect, reinforcing the importance of physical stores in the omnichannel strategy.