Myer interim result underwhelms as sales slide continues
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Retail heavyweight Myer Holdings has announced $62.8 million in net profit after tax for the first half of fiscal 2017, up 5 per cent from its interim 2016 result even as sales unwind.
This comes amid troubled times for the broader Australian retail sector as Myer (ASX: MYR) faces multiple challenges from online and international specialty competitors. It also defies the company's declining sales, which were off 0.6 per cent for the period, to $1.78 million from $1.79 in 1H16.
"The improved profit result was achieved against a backdrop of aggressive competition, with heavy discounting both before and after Christmas and patchy consumer confidence.
"We are 18 months into our five-year transformation, and I am pleased with the progress we have made. We are a better and stronger company as a result of the New Myer strategy," said Richard Umbers, Myer's CEO and managing director.
Morningstar analyst Johannes Faul highlights the sales decline, with the NPAT and margin growth driven by cost-reductions rather than any sales boost: "To see any return to real growth, we need to see that expansion at the top line."
He believes the improvements during the first few years of this five-year turnaround "represent low-hanging fruit" and expects earnings before interest and taxes to stall from 2022.
"Once the underperforming stores have been closed and the flagship and premium stores are refurbished and fully aligned with the new strategy, we expect increases in margins to be hindered by increasing competition from international specialty retailers," Faul says.
He points to British department store Debenhams, which has partnered with another operator to open a franchise in Melbourne in the second half of this year.
In the lead-up to the interim result, Myer re-launched its store in Warringah Mall, on Sydney's northern beaches. "Customers have responded well…with sales per square metre up 38 per cent compared to FY2014 when the store last traded without centre disruption," says Myer's Umbers.
Myer has also attempted to respond to the digital threat by launching a multi-channel program, targeting the online space--this saw online sales grew by 48 per cent half-on-half.
"This, together with significant improvements in pick, pack and fulfilment contributed to another half of profit growth ahead of sales growth," Umbers says.
The retailer has also "optimised" a number of stores, with three closures in regional New South Wales locations: Wollongong, Brookside and Orange. It has also reduced its head office space in Melbourne, having handed back more than a third of the space at its 800 Collins Street premises.
"We continue to make good progress in developing a simplified business model," Umbers says.
Myer was priced at $1.08 in early afternoon trading, down 5.5 per cent.
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Glenn Freeman is Morningstar's senior editor.
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