Third profit hit triggers selloff, fears of more pain in store
Investors punished Myer shares on Friday after the department store owner this week unveiled a near 9 per cent fall in full-year profit, missing market expectations, as well as providing a dour outlook for 2014.
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, Myer shares 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 profit slide.
But shareholders were also disappointed by the outlook provided by Myer boss Bernie Brookes, who warned of weaker sales for the next six months and another profit fall for 2014. Profit growth would not return until 2015, he added.
UBS analyst Ben Gilbert kept his rating on Myer as "neutral" but cut his 2013-14 pre-tax earnings target on the company 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, cost rose faster than sales and the same outcome is likely again in 2014."
He forecast earnings per share to fall 5 per cent this financial year.
"In our view, staffing levels need to rise significantly to meaningfully improve sales," he 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 growing 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."
He said rising costs were a "fact of life", with Myer's cost of doing business likely to rise 4 per cent or 5 per cent in 2014.
"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.
"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.