Myer first-half profit falls

Myer Holdings expects cost growth to moderate, Brookes looks forward to 'wholesome evaluation' of David Jones merger.

Myer Holdings (MYR) expects moderating cost growth and its maturing series of strategic initiatives to deliver an improvement in earnings momentum in fiscal 2015, despite a decline in first-half profit.

In the six months to January 25 Myer posted a net profit of $80.77 million, an 8.1% decline on the previous corresponding period's $87.92m.

The result was largely in line with analyst expectations that centred on an average forecast of $79.4m.

Myer will pay a fully-franked interim dividend of 9 cents, payable on May 8 to shareholders on the register at March 31.

In the same period total sales came in at $1.737 billion, a very modest 0.3% increase on the $1.732bn recorded in the first six months of 2013.

The retailer said it remains cautious about the trading environment for the remainder of the year, given the continued pressure on discretionary income and uncertain consumer sentiment.

Myer said its cost of doing business increased by 2.1% in the first half to $540m, due to increased costs related to labour and occupancy, annualised costs from the investment in new stores, store closure and refurbishment costs.

Increased operating expenses associated with growing the online business and the group's space optimisation project also weighed.

“Whilst we anticipate that cost growth pressure will begin to moderate towards the end of  fiscal 2014, these higher costs together with an increase in depreciation led to a 10.5% reduction in earnings before interest and tax (EBIT) to $127m," Myer chief executive officer Bernie Brookes said.

"The strong cash flow result and lower interest rates led to a reduced interest cost resulting in NPAT for the period being down 8.1% at $81m."

Mr Brookes said the results were positive given the disruption caused by refurbishment work at three of the company's top stores and the closure of another shop.

"It was encouraging to achieve total sales growth despite significant sales disruption caused by three of the top 20 stores being under major refurbishment and the closure of our store at Dandenong," he said.

The company's gross profit margin decline 21 basis points to 41% due, in part, to price discounting as part of its stocktake sale.

Brookes welcomes appointment of DJs advisors

Mr Brookes said he was pleased to see that David Jones have appointed advisors to assess the proposed merger of Myer and its rival.

On Monday, David Jones engaged management consulting firm Port Jackson Partners to assess the value of synergies that could be extracted if the two groups merged.

He said he was concentrating on driving the Myer business and wouldn't comment on the prospect that any potential merger could see himself or David Jones chief executive Paul Zahra out of a job.

He said such hypotheses were "purely speculative".

Mr Brookes said intricate details of the proposed merger, such as potential job losses, would be considered as part of a "wholesome evaluation" process to be undertaken by both parties.

He also refused to comment as to whether Myer could afford to add a premium to its offer.

Yesterday, following the release of its first-half results, David Jones chief Mr Zahra dismissed Myer’s nil premium offer and questioned the $85 million in synergies its rival claims a merger would achieve.

Myer confirmed in January that it undertook "significant analysis" before approaching David Jones to consider a merger.

The David Jones board rejected the offer, saying the transaction did not represent sufficient value for shareholders.

Last month, Myer renewed its push to talk about a possible deal, saying it would be a "true merger of equals".

The Australian Competition and Consumer Commission has said it will follow any developments in the proposed deal closely.

Myer upbeat about online future

Myer said it continues to believe online sales will double in fiscal 2014 from the previous year, and that the online business will reach break-even during the 2014 year.

"Ongoing investment in omni-channel is driving continued growth in online sales supported by our new online fulfilment centre in Melbourne and our new order management system," Myer said.

Mr Brookes said the group's online sales continued to grow strongly during the half supported by improved fulfilment capability as a result of its online distribution centre which opened prior to Christmas.

"We were disappointed by the outage of our website during the start of our stocktake sale when the site experienced performance and stability issues," he said.

"We believe the issues have been resolved and the result is a more stable website that continues to trade well."

Despite the outage, Mr Brookes said, the online store experienced particularly strong sales growth during December and January including its best sales day on record and a week in which it ranked in Myer's top ten stores.

Mr Brookes said Myer continues to believe it is on track for online sales to reach 10% of its business within five years.

Myer expects second-half sales to benefit from the completion of refurbishments at its Adelaide and Indooroopilly stores, while the opening of the group's Emporium development in the Melbourne CBD is also expected to generate value.

However, the second half performance of Myer is set to be impacted negatively by the closure of its Dandenong  and Elizabeth stores, as well as ongoing refurbishments at the Miranda and Macquarie stores.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles