The company, which also owns brands Domayne and Joyce Mayne, on Thursday posted a full-year underlying net profit of $471.9 million, down from $673.5 million the previous year.
Rising inflation and interest rates have hit retailers hard as consumers reduce discretionary spending to keep their heads above water.
Revenue from franchisees dropped 10 per cent after sales fell 4.9 per cent to $6.42 billion, slicing profit margins to 5.8 per cent.
But chairman Gerry Harvey says the company's $4 billion property portfolio keeps it in good stead to ride out a slowdown in spending.
"Amid progressively worsening macroeconomic conditions and cost of living pressures this year, our balance sheet remains strong," he said in a statement to the ASX.
The drop in sales was also attributed to a normalisation in trading conditions after pent-up demand caused by COVID-19 lockdowns inflated figures the previous year.
Mr Harvey blamed cooler than usual temperatures on Australia's east coast for lower sales of seasonal products such as air-conditioners, fans and barbecues.
He said profitability is still well above pre-pandemic levels, with before-tax profit up 35 per cent from 2019 to $776 million, and touted a 40 per cent growth in net assets.
Operating expenses rose 8.1 per cent after being abnormally low the previous year, when the company was forced to shut its stores due to COVID restrictions.
The overseas business, which is operated by Harvey Norman as opposed to franchisees, experienced a 40.1 per cent drop in profit.
The group's property segment, which makes up just under a quarter of total underlying profit, recorded a 25.9 per cent profit dip.
E&P Capital retail analyst Phillip Kimber said the result, while "broadly in line with expectations, was very weak".
"The Australian franchisee was better than expected, but the offshore businesses were generally worse than expected," he said in a note.
"Sales momentum remains weak."
The board declined to provide earnings guidance for the incipient financial year, but revealed Australian retail trading for July was down 12.6 per cent on the previous corresponding period.
Harvey Norman was the last of Australia's major retailers to report its full-year earnings.
Competitor JB Hi-Fi surprised the market earlier in August with a lower-than-expected drop in profits, with sales actually increasing at the electronics and white-goods chain.
Harvey Norman declared a fully franked final dividend of 12 cents, down from 17.5 cents the previous year.
The company's share price climbed 2.6 per cent to $3.94 in early trading.
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