Michael Hill Maps Path to 10% EBIT Margin as Canada Sales Surge 11% in Q3

Michael Hill outlines strategy for 10% EBIT margin at Investor Day 2026

In its April 2026 investor presentation, Michael Hill International Limited (ASX: MHJ) outlined a clear strategic framework anchored to a single financial ambition: management believes “good looks like” an EBIT margin of 10%. Held at the company’s Brisbane headquarters on 14 April 2026, the presentation detailed four strategic levers to achieve this profitability target: improved store productivity, diversified revenue growth, gross profit improvement, and operating leverage improvement. The board also signalled its intent to return to dividends at the FY26 full year results, subject to trading conditions continuing.

Michael Hill operates 282 stores globally, comprising 122 Michael Hill stores in Australia, 81 in Canada, 43 in New Zealand, and 36 Bevilles stores in Australia. The group’s loyalty programme now includes over 3.2 million members across the three country segments.

Chair Rob Fyfe and Chief Executive Officer Jonathan Waecker were joined by members of the executive leadership team, including newly appointed Chief Product Officer Tonia Zehrer and Chief Financial Officer Elodie Guillaumond. The EBIT margin target provides investors with a measurable benchmark against which to assess execution progress, moving beyond qualitative brand repositioning to define quantifiable operational success.

Q3 FY26 trading update confirms positive momentum

The presentation included a quarterly trading update covering the January-March 2026 period, demonstrating that the strategic framework is delivering early results. Total Group sales increased 3.8% in Q3 FY26, with same-store sales growth recorded across all three geographic segments. Gross margins remained broadly flat year-on-year despite commodity volatility.

Canada’s 11.3% same-store sales growth validates management’s identification of this market as the primary growth engine. The segment is positioned to expand from 81 stores to a target range of 85-90 stores, underpinned by lower brand awareness relative to Australia and New Zealand, which management views as headroom for both network expansion and market penetration.

Management acknowledged continued monitoring of “rapidly evolving consumer headwinds and increased volatility going into Q4 and FY27,” signalling awareness of macroeconomic uncertainty while maintaining confidence in underlying operational momentum.

What is an EBIT margin and why does 10% matter?

EBIT margin measures earnings before interest and tax as a percentage of total sales. A 10% EBIT margin means the company would retain $10 in operating profit for every $100 of sales generated. This metric strips out the effects of financing costs and tax structures, providing investors with a clearer view of underlying operational efficiency across the company’s three country segments and two brands.

Management’s decision to publicly define 10% as the benchmark for “good” performance establishes a clear accountability framework. The target is not presented as an imminent forecast but as a structural aspiration that reflects what the business is capable of achieving when the four strategic levers are fully deployed: improved store productivity, diversified revenue growth, gross profit improvement, and operating leverage improvement.

For investors, the 10% target provides a lens through which to evaluate quarterly and annual results. Progress towards this margin profile would indicate successful execution of the strategic framework outlined at the Investor Day.

Brand portfolio simplified to two core brands

Michael Hill has simplified its brand portfolio from five brands to two, concentrating resources on Michael Hill (premium) and Bevilles (value). The company is winding down MEDJEY by the end of FY26, redirecting WatchesGalore into the Bevilles ecosystem, and scaling the bespoke bridal model validated by TenSevenSeven across the Michael Hill store network.

The rationalisation removes complexity and allows management to focus investment on the highest-value opportunities. TenSevenSeven validated strong customer demand for bespoke engagement rings, with average transaction values over 4x Michael Hill’s average bridal transaction value. In-store trials are now underway to scale this bespoke ring-building experience across the global Michael Hill network.

The two-brand model targets distinct customer segments while acknowledging overlap at opening price points across approximately 14% of the global footprint (representing 30% of the Australian segment).

Bevilles reset showing early green shoots

Bevilles, acquired in April 2023, is positioned as a value-led jewellery and watch retailer operating under the framework “Value. Fast. Lean.” Following strategic drift in FY24 and FY25, the business entered a reset phase in December 2025 under new leadership. The reset focuses on delivering unmistakable customer value, maximising inventory velocity, and creating structural advantage through lean operations.

Early trading metrics demonstrate improvement. While H1 FY26 showed performance declines across same-store sales, gross profit percentage, and gross profit dollars year-on-year, Q3 FY26 reversed this trend with improvement across all three measures.

Bevilles currently operates 36 stores in Australia, with one recent closure at Charlestown (NSW). Performance is strongly influenced by catchment demographics and customer mix.

Management outlined a disciplined three-stage investment framework with gates:

1. Stage 1 (The Reset): Return Bevilles to performance in line with its identity as a discount jeweller, restoring clear value positioning, product clarity, and commercial discipline.
2. Stage 2 (Proving the Model): Demonstrate that the reset strategy delivers sustained same-store sales growth, gross profit percentage improvement, and consistent store-level profitability.
3. Stage 3 (Evaluating Expansion): Assess network expansion and optimisation opportunities within Australia, subject to demonstrated return on capital.

Each phase must be proven before the next is unlocked, ensuring disciplined capital allocation and reducing execution risk.

Canada identified as primary growth engine

Canada has been identified as the segment with the most significant expansion runway, supported by 11.3% same-store sales growth in Q3 FY26 and lower brand awareness relative to Australia and New Zealand. The presentation outlined differentiated strategic focuses for each country segment.

In Canada, management is targeting disciplined store openings in high-traffic malls across key provinces where brand presence remains underdeveloped, combined with localised marketing to grow brand awareness and emotional connection. The segment also represents the greatest opportunity for digital sales growth, with digital penetration currently lower than in Australia.

Australia will prioritise productivity improvements over footprint expansion, with disciplined lease renewals exiting locations that do not meet return hurdles. New Zealand will defend its market leadership position through operational excellence and network optimisation, including refurbishments of key high-traffic locations.

Geographic diversification reduces concentration risk while allowing management to deploy capital to the highest-returning opportunities within each market.

Digital sales represent 2-3x growth opportunity

Digital sales accounted for 8.6% of total Group sales in FY25, up from 5.7% in FY21. Management sees opportunity to grow this to 2-3x current levels, with the majority of digital sales flowing through stores via Click & Collect, supporting rather than cannibalising physical retail.

Digital trading margins perform in line with overall trading margins. Growth in digital sales in H1 FY26 was ahead of total sales growth, with the greatest expansion opportunity identified in Canada, followed by Australia.

The digital growth strategy prioritises three capabilities:

• Discovery and store conversion: Broaden customer reach, convert through stores, and unlock demand through agent-led engagement.
• Enhanced clienteling: Fully equip front-line teams to deliver integrated retail with greater consistency, relevance, and impact.
• Expand digital commerce: Grow digital commerce profitably through smarter fulfilment, agent-enabled selling, and AI-driven activation.

Stores remain the competitive advantage in a digital world, with the company positioning digital as an enabler of store productivity rather than a separate channel.

Product innovation focuses on four key growth categories

Chief Product Officer Tonia Zehrer outlined strategic priorities across four key growth categories: Men’s, Basics, Bridal, and Watches. The product strategy emphasises value-driven categories, limited releases, focused product storytelling, and expansion of personalisation, custom, and bespoke experiences.

1. Men’s: Capitalise on one of the hottest retail growth categories globally while attracting a new customer base. Men’s jewellery represents a significant demographic expansion opportunity.
2. Basics: Apply world-class retail fundamentals and design-led rigour to elevate, simplify, and scale core assortments, turning core product back into a competitive advantage.
3. Bridal: Deepen bridal authority and grow a base of loyal, high-value customers who return across life’s milestones. Bespoke ring-building services are being scaled following validation through TenSevenSeven.
4. Watches: Michael Hill-branded watches sit at the heart of brand heritage, enabling faster movement on style and fashion through limited editions while attracting new customers.

The dual diamond strategy positions premium lab-grown diamonds to capture market growth and drive fashion, value, and customer excitement, while natural diamonds reinforce Michael Hill’s modern luxury credentials and support premium brand positioning.

All Michael Hill products are designed exclusively in-house, providing margin protection through design control. This allows management to engineer products that balance beauty, durability, and value while managing exposure to metal price volatility.

Managing gold price volatility while protecting margins

Gross margins have held flat at approximately 61% despite significant gold price movements. Gold spot prices peaked at USD 5,322 and were recorded at USD 4,677 as at 12 April 2026. Management outlined a three-pronged approach to managing commodity volatility:

1. Agile Pricing Discipline: Responsive pricing mechanisms that reflect input cost changes without sacrificing customer value perception.
2. Product, Mix and Margin Management: Proactive adjustment of product assortment and category mix to maintain blended margin profiles.
3. Strategic Supplier Partnerships: Deepened vendor relationships that provide flexibility and innovation in managing cost of goods.

Design Control as Margin Protection

All Michael Hill products are designed exclusively in-house. This design control allows the company to engineer products that balance beauty, durability, and value while managing exposure to metal price volatility. The result is stronger brand differentiation, sustained pricing power, and resilient margins.

Commodity exposure remains a key risk for jewellery retailers. Management’s demonstrated ability to maintain gross margins through the recent volatility period provides investors with confidence in earnings visibility despite external input cost pressures.

Capital allocation framework prioritises dividend return

The board intends to return to dividends at the FY26 full year results, subject to trading conditions continuing. The dividend policy targets 50% to 75% of adjusted net profit after tax (NPAT).

Capital allocation follows a clear priority sequence:

1. Strong balance sheet: Structure for seasonal trading volatility, with inventory disciplined to drive EBIT growth and cash conversion.
2. Sustaining and base growth capital: Targeted, disciplined capital expenditure where returns exceed cost of capital.
3. Shareholder returns (dividends): Policy of 50-75% of adjusted NPAT.
4. Residual cash flow allocation: Additional growth capital where returns exceed cost of capital, debt repayment (facility refinanced on improved terms with seasonal debt profile linked to commodity-backed inventory), and additional shareholder returns subject to balance sheet strength.

The explicit dividend intention signals management confidence in the business trajectory and provides income-focused investors with a clear catalyst timeline. The FY26 full year results represent the next formal opportunity for the board to assess trading conditions and activate the dividend policy.

Key takeaways for investors

Management outlined four pillars in its closing remarks:

1. Building momentum: Early results confirm the framework is working, with sales growth returned and margins sustained. Q3 FY26 trading update validates that operational improvements are translating into financial performance.
2. Growth engines identified: Canada expansion, Australia and New Zealand productivity focus, digital acceleration, product innovation, services-led differentiation, Bevilles reset, and AI capabilities provide multiple pathways to revenue and margin growth.
3. Clear path to EBIT growth: Four value multipliers have been defined (improved store productivity, diversified revenue growth, gross profit improvement, operating leverage improvement), providing a measurable framework for assessing progress towards the 10% EBIT margin ambition.
4. Disciplined capital allocation: The intent to return to dividends at FY26 full year results establishes a clear timeline for shareholder returns, contingent on sustained trading conditions.

The Investor Day presentation provides investors with a comprehensive strategic roadmap, measurable financial targets, and evidence of early execution success through the Q3 FY26 trading update.

For further information, investors can contact Anthea Noble, General Manager – Investor Relations & Treasury, at investor@michaelhill.com.au.

Want the Next Retail Turnaround in Your Inbox?

Join 20,000+ investors receiving FREE breaking ASX news and in-depth analysis within minutes of release. Big News Blast delivers consumer discretionary announcements the moment they hit the market, complete with expert coverage. Click the “Free Alerts” button to stay ahead on retail sector developments before the market moves.