Harvey Norman has received a first strike against its remuneration report, with 50.6 per cent of the shares voted against the report at the annual meeting on Tuesday.
This followed a near miss in 2017, when 23.4 per cent of shares were voted against the remuneration report.
If shareholders vote against the report at the annual meeting next year Harvey Norman faces a board spill.
The Australian Shareholders Association had urged investors to vote against the report because of the lack of independent directors on the board, loans to joint venture partners and franchisees, and investments in mining camps and a dairy farm, which collapsed earlier this year.
However, chairman Gerry Harvey lashed out at critics and defended the company’s performance and board structure, saying executive and non-executive directors had “skin in the game”.
Mr Harvey also lamented Harvey Norman’s share price, which has fallen 22 per cent this year to $3.00.
“It’s a wonderful opportunity to buy back shares in the company and it’s a wonderful opportunity for us to privatise the company,” he said.
“There are all these opportunities that present to you when the share price falls to $3.00.”
Earlier on Tuesday, Harvey Norman issued a trading update, revealing that sales at Harvey Norman’s franchised stores in Australia slipped 1.3 per cent in the financial year to date as the downturn in the housing market dented demand for furniture and appliances.
Total sales from Australian franchised stores fell 1.3 per cent from July 1 to November 23, while same-store sales edged 0.2 per cent lower.
This followed a 1.1 per cent decline in the first two months of fiscal 2019 and suggests sales may have picked up in the last two months, possibly buoyed by the reopening of Harvey Norman’s flagship store in Auburn in late September.
Citigroup analysts had expected same-store sales to fall 1.5 per cent in the first quarter and 3 per cent in the second quarter.
In comparison, same-store sales rose 4 per cent in the four months ending October 31 2017.
Malaysia stands out
Harvey Norman’s total aggregated sales from franchised stores and company-owned stores overseas rose 2.7 per cent to $2.88 billion – boosted by the rising Euro, UK pound, Malaysian ringgit – and same-store sales were up 3.0 per cent.
Malaysia was the stand-out, with same-store sales from Harvey Norman’s 16 stores rising 32.4 per cent in local currency terms while sales in Singapore rose 3.2 per cent.
Ireland also performed strongly, with same-store sales rising 20.9 per cent, while sales across the border in Northern Ireland fell 1.0 per cent.
In New Zealand, same-store sales in local currency rose 4.5 per cent and sales in Slovenia and Croatia were up 8.8 per cent.
So far this year Harvey Norman has opened one Joyce Mayne franchised complex in Australia, one company-operated store opened in Malaysia and one Harvey Norman franchised complex was closed in Australia.
Analysts say Harvey Norman is one of the most exposed listed retailers to the slowing housing and consumer markets, with about 46 per cent of earnings coming from furniture, homewares, appliances and consumer electronics retailing in Australia.
Earlier this week UBS retail analyst Ben Gilbert cut his profit forecast for Harvey Norman by 2 per cent to $368 million in 2019 compared with a normalised net profit of $377 million in 2018, reflecting weaker same-store sales and earnings from Australian franchisees.
Mr Gilbert expects same-store sales in Australia to fall 2 per cent this year, forcing Harvey Norman to increase tactical support and driving franchise margins down about 62 basis points.
“The housing market and overall consumer is moderating, competition is intensifying (online and from The Good Guys) and margins are at risk via increased support and shift to online (which is dilutive to earnings),” Mr Gilbert said.
“That said, at 10 times 2019 earnings per share … and a 9 per cent dividend yield, we believe these risks have been priced in and we retain our neutral rating,” he said.
Harvey Norman shares have fallen 22 per cent this year to $3.01.