Myer
Recommendation
In Myer float on the stand from 6 Oct 09 (Avoid – $4.10), we were critical of the company’s growth strategies. The release of Myer’s interim results to 28 January 2012 confirms it was right to be sceptical. Gross margins improved over the period, but that was about the only good news.
What was most galling was that Myer admitted staffing levels had been cut too far. The company needed to invest $13m in boosting staff numbers over the half, which contributed to the cost of doing business rising from 28.8% to 30.2%. The company has also cut back its store opening program, so the intention at the time of the float to have 80 stores open by mid-2014 has gone out the window.
Half to 28 January | 2012 | 2011 | Change (%) |
---|---|---|---|
Revenues ($m) | 1,704 | 1,733 | (2) |
EBIT ($m) | 143 | 168 | (15) |
Net profit ($m) | 87 | 108 | (19) |
EPS (c) | 15.0 | 18.4 | (18) |
DPS (c) | 10.0 | 11.0 | (9) |
Franking (%) | 100 | 100 |
The result itself demonstrated the difficult retail climate. Sales fell 2% to $1,704m, while net profit fell 19% to $87m. From earnings per share of 15 cents, a fully franked interim dividend of 10 cents was declared (ex date 26 Mar).
Despite the weak first half, management forecast the full-year profit to be above $146m. That’s less than a 10% decline, which looks like a stretch target. If it can be achieved, though, the stock is trading on a PER of only 9.
Our concerns are longer-term in nature. Operating margins still look too high, and some department store categories are likely to come under competitive pressure. Then there’s the fact that Myer has little property on the balance sheet and $298m of net debt, so it is riskier than competitor David Jones. Our view in Ill winds hit JB Hi-Fi, Myer and DJs from 15 Jul 11 (Avoid – $2.48) remains the same. AVOID.