****this is huge**********, page-17

re: hvn getting dumped (initial views) Hi Goblin,

Initial broker views:

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MORGAN STANLEY (Martin Yule)
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"Harvey Norman has announced its first half sales grew 16.6% to A$1.87 billion. Like-for-like sales were up 11%. While this is a reasonable result and in-line with our forecasts at the start of the half, it is disappointing given far stronger trading in 1Q. Up to October 31, HVN was tracking up 21%. This implies Christmas sales grew only 12.6%.

The disappointing aspect of this announcement is that there is a clear deceleration of sales over the quarter. The first three months of the year were up 22%. October rose 17%, while November and December were only 13%. Given no discernable fall in consumer confidence numbers, it is hard not to interpret this as a slow-down.

In the first quarter of the year, ABS retail sales data suggests that Harvey Norman's 'market' very loosely defined grew about 13%. Strength of discretionary spending led to strong growth in furniture, homeware and digital electricals. We think it is clear that sales of these items must have slowed.

HVN essentially blames the sales shortfall on slow sales of air-conditioners. Warm weather arrived late in December in NSW and Queensland, and this affected sales. The company indicates sales have been strong in January. Notwithstanding this fact, we still feel that sales look a bit light.

Bottom Line: While this sales number is below our forecast ($1.95b), we are not overly concerned about the impact on profitability. HVN will benefit from the strength of the currency as well as the general buoyancy of retail spending. That said, we do not believe now is the right time to be buying discretionary retail stocks.

We have Cautious view on the Australia Retail industry."

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CSFB (Michael Jenneke)
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"Second quarter sales results were in line with our expectations although the market seems disappointed with the degree of sales deceleration. The underlying business appears to be trading positively and we expect this to be reflected in HVN’s 1H profit result".


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Goldman Sachs JB Were (George Batsakis)
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"HVN Q2F04 sales increased by 12.4% to $1,003m (GSJBW $1,027m) with first half sales up 16.6% to $1,870m (GSJBW $1,895m). Sales growth slowed from +22.1% in Q1 to +12.4% in Q2. H1F04 comparable store sales increased by 11% which compares to +14.9% in Q1F04. Sales growth slowed in Q2 due to soft airconditioner sales. Overall sales softer than we expected but still a sound sales result. No change to investment view".