Aug. 25 (Bloomberg) -- Michael Hill International Ltd., New Zealand’s largest specialty jewelry retailer, said full-year operating profit fell 38 percent as a recession curbed spending and the company expanded in the U.S.

Earnings before interest and tax fell to NZ$26.1 million ($18 million) in the year ended June 30 from NZ$42.1 million a year earlier, the retailer said in a statement. The company cut its second-half dividend to 1.5 cents a share from 2 cents.

Michael Hill gets about two-thirds of its revenue in Australia and has bought stores in the U.S. and Canada to broaden its sales base and help establish its watches, rings and jewelry as an international brand. A recession in New Zealand and North America damped earnings, it said.

The stock fell 3 cents, or 4.2 percent, to 69 cents at the 5 p.m. market close in Wellington.

Operating profit fell 19 percent at New Zealand stores as sales and margins declined. There was a NZ$245,000 operating loss from Canada and a NZ$5.3 million loss in the U.S. Earnings in Australia improved 11 percent.

Net income surged to NZ$69.5 million from NZ$25.2 million a year earlier after the company recognized a NZ$52.9 million tax credit after it transferred intellectual property to Australia as part of a restructure.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

Last Updated: August 25, 2009 01:05 EDT