Myer's new wardrobe

Myer's Bernie Brookes has confounded the sceptics by not only being able to do slightly more than maintain sales but issue guidance for the full year that is even better that the previously reaffirmed prospectus forecasts.

Myer lifted sales 0.7 per cent (0.5 per cent on a like-for-like basis) even though it was cycling stimulus-swollen sales growth of more than three per cent in the second half of last year. It did so, however, without sacrificing profit, with the previous guidance of $261 million of earnings before interest and tax (EBIT) now raised to between $265 million and $272 million.

At the upper end of the range Myer's EBIT margin would be almost 8.3 per cent. When private equity originally acquired Myer in 2006 it had an EBIT margin of less than 2 per cent.

The external impression was that Myer had defended its sales base simply by discounting. It is now obvious that the discounting was executed strategically and that Brooke's confidence that he had 'variabalised' Myer's costs and could dial them up or down as required wasn't misplaced.

It would appear that, to produce the result foreshadowed, it wasn't just a matter of discounting or, indeed, conventional cost control. Myer, even before it turned on its new CCTV systems, is said to have significantly reduced 'shrinkage' – theft by customers and staff.

It has also lifted the proportion of sales generated by its owned brands from about 15 per cent to 17 per cent. Those brands carry big margins and Myer directly sources them, giving it more control over costs. A strong dollar wouldn't have hurt.

While a 0.7 per cent increase in sales doesn't address the core criticism of Myer – that its sales have been stagnating at or around $3 billion a year for years – Brookes would be starting to feel that he is on the verge of being able to challenge the nay-sayers.

The flagship Bourke Street store in Melbourne is nearing the end of its complete redevelopment. Before the remaking of the store started, it was doing about $300 million a year of turnover. For the financial year just ended it is probably going to be closer to $220 million to $230 million.

By the Christmas trading period Myer hopes to have seven of the store's eight floors finished and open for trading. While Myer still has one quarter of stimulus-inflated sales growth to cycle, there is enormous upside latent in its future sales numbers from the completion of that redevelopment.

With the new Top Ryde store in NSW opening next week and the Robina store on the Gold Coast scheduled to open in November, Myer now has some underlying momentum built into its near term sales profile. It has another 12 stores in the pipeline over the next four years. In the near term, the unhappy events at rival David Jones aren't exactly a negative for Myer.

In the medium term, Myer, and department and specialty stores more generally, face some challenges with a wave of new, and in some instances highly innovative, retailers planning to enter the market.

The reinvention of Myer, however, has now been stress-tested by the difficult external conditions and the results signal that Myer is now far better positioned to deal with whatever happens around it than it has been for several decades.