Analysts mark down Myer after poor result
Some analysts have also been quick to take the company down a peg following the release of its earnings result, reducing their profit forecasts for fiscal 2014 and lowering Myer's valuation.
A standout complaint came from Citi analyst Craig Woolford who after going through the details of the result said Myer needed to increase its staffing levels at its department stores by as much as 10 per cent to generate a sales boost.
Shares in Myer on Friday closed down 4 per cent to $2.66. A day earlier they fell more than 5 per cent when the retailer unveiled an 8.7 per cent drop in full year profit to $127 million - its third successive annual slide.
But shareholders were also disappointed by the outlook provided by Myer boss Bernie Brookes, who warned weaker sales for the next six months and another profit fall for 2014. Profit growth would not return until 2015, Mr Brookes said.
UBS analyst Ben Gilbert kept his rating on Myer as "neutral" but cut his 2013-14 pre-tax earnings target by 20 per cent and earnings per share target by 18 per cent.
"While on a headline basis Myer looks attractive into 2014-15 and offers significant leverage to an improving consumer backdrop we believe a significant level of uncertainty remains, particularly around the projected uptick in fiscal 2015 earnings," Mr Gilbert said.
Mr Woolford, who downgraded Myer to a "sell", noted Myer's profitability continues to decline.
"In 2012-13, costs rose faster than sales and the same outcome is likely again in 2014," he said. He forecasts earnings per share would fall 5 per cent this financial year.
"In our view, staffing levels need to rise significantly to meaningfully improve sales," Mr Woolford said.
"Sales are 5 per cent lower than five years ago, even though there are more stores." Mr Woolford said the real challenge for Myer was increasing sales faster than costs.
"It's not easy, but entirely plausible. In our view, staffing needs to rise by 10 per cent as a precursor to better sales growth."
Rising costs were a "fact of life" with Myer's cost of doing business likely to rise 4 per cent to 5 per cent in 2014, he said.
"Online and new stores will help, but refurbishment disruptions and closures hurt. The company has signalled a focus on driving sales per square metre. If there are early signs of success, we would become more positive on the stock."
Citi has downgraded the stock and set a target price of $2.40 for Myer.
"The only saving grace we see for Myer is that the stock has a better price to earnings relative valuation than other large ASX-listed discretionary retailers," Mr Woolford said.
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Myer shares fell after the company reported an 8.7–9% decline in full‑year profit to $127 million, missed market expectations and issued a weak outlook for 2014. Investors reacted to the profit slide, management warnings of weaker sales over the next six months and analyst downgrades.
Myer’s boss Bernie Brookes warned of weaker sales for the next six months and another profit decline in 2014, saying profit growth is not expected to return until 2015.
Citi downgraded Myer to a sell and set a $2.40 target price after highlighting falling profitability and forecasting higher costs, while UBS kept a neutral rating but cut its 2013‑14 pre‑tax earnings target by 20% and its earnings‑per‑share target by 18%.
Citi analyst Craig Woolford recommended increasing in‑store staffing levels by about 10% as a precursor to driving better sales growth, arguing current staffing may be too low to lift sales meaningfully.
Myer shares closed down 4% to $2.66 on Friday after the results; they had fallen more than 5% the previous day when the profit downgrade was first announced.
Analysts noted Myer’s profitability has been declining, with costs rising faster than sales; Citi expected the cost of doing business to rise about 4–5% in 2014 and forecast a potential 5% fall in earnings per share for the financial year.
Analysts acknowledged that online sales and new stores could help Myer, but cautioned that refurbishment disruptions and store closures have hurt performance, and that sales per square metre will need to show early improvement before sentiment turns more positive.
The key takeaways are that Myer reported a third successive annual profit slide, management expects weaker sales into 2014, and analysts see significant uncertainty—some cutting earnings forecasts and one downgrading to sell—though the stock trades with a relatively better price‑to‑earnings valuation versus other large ASX discretionary retailers according to Citi.
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