By Shivaun Hales

Harvey Norman has today posted a 2.1% drop in first-half profit to $128.95 million as the retailer feels the sting of ongoing price deflation and intense competition.

Profit before tax dropped 17.69% from $198.61 million to $163.47 million in the six months leading to December 31, 2011.

Harvey Norman’s global sales results for the first half, including Australia, New Zealand and Europe fell 6.1% to $3.11 billion. Like-for-like sales for the first six months of 2011-12 fell by 6.3%.

Harvey Norman chairman Gerry Harvey attributed the drop to currency deterioration, with global sales negatively impacted by a 0.1% fall in the New Zealand dollar, a 4.4% fall in the value of the euro and a 6.9 % drop in the value of the UK pound.

Australia was the worst performing market, with sales down by 6.8% in the first half, and 10.2% in the second quarter. On a like-for-like basis, Australian sales dropped 6.6 % for the half and 9.5% for the second quarter.

Harvey Norman said sales at its furniture and bedding franchisees remained strong, and that home appliances performed well on the back of the home renovation market.

However Audio Visual and Information Technology (AV/IT) sales suffered from ongoing price deflation, particularly in flat-panel TVs and computer hardware, resulting in lower sales dollars. The retailer expects a challenging six months for the AV/IT category.

According to Harvey, the results reflect the company’s unique strategy.

“Our diversified strategy of managing an integrated retail, franchise and property system has enable us to mitigate some of these negative headwinds and allow us to build on an exceptionally strong net asset base to provide future growth,” commented Harvey.