Myer comes clean and announces $0.5b of significant items
In the six months to January 2018 Myer’s total revenue declined 3.6 per cent to $1.72 billion. Operating Gross Profit declined 5.5 per cent to $645 million and margin came down 0.73 per cent to 37.5 per cent (and down from 41.5 per cent in Fiscal 2013). Normalised net profit fell 36 per cent to $40 million or EPS of 4.9 cents. The interim dividend was cut from 3 cents to nil.
As we indicated here the impairment charge relating to Myer goodwill and brand name was $515 million and other asset impairments came to $9 million.
ShopperTrak, which is a national index measuring change in shopper numbers across 2,500 locations at discretionary retailers, reported sustained footfall declines in the half-year with a particularly steep 10.7 per cent decline in January 2018, on the previous corresponding period.
This is bad news for Myer, as they are fighting with one arm tied behind their back. This includes the disruptive forces from on-line retailing, increasing competition from Zara, Uniqlo and H&M, and $2.75 billion worth of non-cancellable operating leases where at least 13 stores are deemed “inferior locations”.
IFRS 16 Leases, the new accounting standard for leases which comes into effect from 1 January 2019 will essentially eliminate the accounting distinction between finance and operating leases, bringing previously off-balance sheet arrangements onto the balance sheet. Future operating lease payments will be capitalised and included on the balance sheet as a right-of-use (ROU) lease asset and a corresponding lease liability. For context, Myer’s restated Shareholders’ Funds at 31 January 2018 was $580 million, down from $1073 million at 31 July 2017.
Management are doing the obvious things – closing sub-economic stores and significantly reducing the number of “inward facing staff”, while increasing the proportion of casual staff which boosts flexibility based on foot traffic. On-line sales are growing strongly – up 49 per cent on the previous corresponding period – but they still only account for 6 per cent of total revenue.
Remembering Myer made $5 million at the net profit line in the July 2017 half-year and given the Company, in period since January 2018, “has invested in price competitiveness and sales have improved, however week to week volatility continues to exist”, it seems likely Myer’s profitability will struggle in the foreseeable future.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
