Myer chief sees gloomy year ahead
Myer boss Bernie Brookes has admitted that 2014 will deliver another year of earnings disappointments as the department store is handicapped by the weight of millions of dollars in higher wages and utility bills, while shoppers remain stubbornly hooked on thrift.
Beset by a raft of challenges, including a wages blowout of nearly $11 million due to pay rises triggered by the Fair Work Act and "bill shock" of $3 million related to a steeper electricity and gas charges, Myer has seen its full-year profit sink in fiscal 2013.
Another fall is tipped this year, to notch up four consecutive years of earning declines. But Mr Brookes has promised a return to profit growth in 2015, despite warning of much weaker sales for the next six months, as the investment dollars poured into its store refurbishments finally pays off and its online store breaks even.
"We have continued to execute our five-point plan over the last year, whilst having an eye to the future and adapting the business to capitalise on the changing structure of retail," Mr Brookes said.
Myer yesterday posted an 8.7 per cent fall in net profit to $127 million for the 2012-13 financial year as total sales increased - for the first time since 2010 - by 0.8 per cent to $3.145 billion.
"We are pleased to have achieved positive sales growth of 0.8 per cent for the full year, despite sales momentum slowing in the second half, particularly in May and June," Mr Brookes said.
But sales in the nation's biggest department store are still stuck below that recorded in 2009, when Myer was sold by its private equity owners to investors through its $2.5 billion IPO and subsequent float on the Australian Securities Exchange.
Reflecting just how tough the trading environment has been for national retailers such as Myer over the past few years, the float prospectus showed it had a profit of $109 million for 2008-09, and revenue of $3.26 billion. And it will not get any better soon, as sales took a surprising turn for the worst in the final quarter of 2012-13, falling 0.8 per cent, or 1.6 per cent on a like-for-like basis, when the impact of new stores is stripped out.
The sales stumble in the fourth quarter missed analyst expectations of flat sales, while the full-year profit also came in lighter than expected.
Both spooked investors, who also sold down Myer on the sales and profit outlook for 2014.
Shares in Myer fell more than 5 per cent on the profit result, before closing down 11¢, or 3.8 per cent, to $2.77, far below the $4.10 a share that institutional and retail shareholders paid in the company's public offer.
The final dividend was also sliced, down to 8¢ a share from 9¢ last year, to take the full-year payout to 18¢.Mr Brookes said that sales had not worsened since July and there was some improvement in August.
Sales for the first seven weeks of the new financial year were still in line with the 0.8 per cent fall recorded for the just completed fourth quarter.
But rising costs would continue to sap earnings for Myer.
Mr Brookes said that during the fiscal 2013 year the cost of doing business had bolted 3.1 per cent to $1 billion, with that set to rise another 4 to 5 per cent this year as the cost of wages and utility bills, as well as its own investment in its still loss-making online store and refurbishments mounted.
Sales growth from new stores would not be enough to counter the benefit of refurbishments in the first half of 2014, but sales should pick up in the second half.
"The sales top line is the variable," he said. "What's the impact of the refurbishments, government policy, consumer confidence and jobs."
"We are very much at the whim of those sorts of things, so it's hard to give guidance.
"We expect the first half to be difficult, based on no sales growth, and we expect the first half to be less than last year from a profitability point of view."
Deutsche Bank analyst Michael Simotas said the key disappointment in the full-year result was the return to negative sales in the fourth quarter, but better than expected margin guidance was good news.