The Australian-based homewares and electronic retailer, Harvey Norman, has received a ‘please explain’ letter from the Australian Stock Exchange (ASX) after shares fell 8.2 percent.
Facing the biggest drop in shares in five years the company is complying with market rules after an unexpected loss of hundreds of millions of its market capitalisation.
In response to the ASX notice issued last week, Harvey Norman said them in response it was "not aware of any information concerning it that has not been announced to the market which, if known by some in the market, could explain recent trading in its securities".
The fall comes after two of its directors sold off more than A$2.5 million ($2.74m) of shares in consecutive days.
Chris Wilkinson, First Retail managing director, says that although this can influence the company we shouldn’t expect to see it change things for New Zealand operations.
“The drop seems to centre alleged questions from financial regulators as to how the company reports losses made by franchisees. Anytime these types of events happen, share prices can go into a tail-spin.”
“To compound the issue, share sales from senior executives (which may have just been coincidental) also caused understandable jitters,” Says Wilkinson. “Lastly, research insight that showed vulnerability for Australia's retail giants from Amazon's expected market entry hit the news, which would have further impacted share prices.”
Stock and share prices are known to continuously fluctuate but falls such as 8 percent are not often seen without reason.
Shares have fallen back down to AU$4.30. since the recorded day of 24 March, but have been declining in a steady way like most share prices do. Unlike the sudden drop of 8 percent this is not unusual.
Ric Spooner, chief market analyst at CMC Markets says that shareholder concern stems from Harvey Norman’s accounting treatment of failed franchisees.
“This has created uncertainty over whether Harvey Norman’s losses may be larger than so far revealed. Investor uncertainty on this issue has been heightened by the company’s response to these reports and confusion about whether the issue is being investigated by ASIC.”
Although since the recent drop Gerry Harvey, chairman for Harvey Norman, has acquired two million shares in the company, bringing its share price back up to trading at AU$4.51
It is expected that Amazon’s possibility to enter Australia could affect stock prices of larger retailers as profits become harder to predict, although, Amazon hasn’t officially announced a move in Australia or New Zealand despite speculation.
Spooner agrees with Wilkinson regarding Amazons trading affecting share prices, saying that the concerns lay mostly in the Australian market, especially those in the electronics and small appliance sector.
“However, the accounting issue has been the major driver of the big sell off in Harvey Norman’s share price this week,” Says Spooner. “Other electronics retailers like JB Hi Fi, that is also vulnerable to Amazon, have held up much better than Harvey Norman this week.”
In New Zealand, sales revenue from company-operated stores rose 10 percent to $883.8 million in 2016. The company has a small stake in listed retailer Briscoe, which it valued at $5.25 million in the 2016 accounts.