Myer slumps on lower forecast

Blair Speedy
The Australian
May 24, 2012

SHARES in department store group Myer yesterday suffered their biggest one-day fall in more than a year after the company downgraded annual profit forecasts and warned that sales were continuing to fall.

Myer chief executive Bernie Brookes said sales had plunged in April and continued to fall in the opening weeks of the fourth quarter, prompting the company to predict that annual profit would be down by as much as 15 per cent this financial year, compared with previous forecasts of a decline of up to 10 per cent.

“The first two months of the quarter were positive, but since the start of April and continuing into May we’ve seen the trading environment deteriorate, mainly in the area of foot traffic into our stores and obviously sales,” Mr Brookes said.

Myer reported total sales of $651.1 million for the 13 weeks to April 28, down from $657m in the same period a year earlier.

Excluding the impact of new store openings, sales were down 2.1 per cent — the eighth consecutive quarter of decline on a comparable-store basis, the key measure used to gauge retail trading performance.

Mr Brookes said the Reserve Bank’s decision to cut interest rates earlier this month and the cessation of the federal government’s flood levy had not resulted in any boost in discretionary spending, while equity market falls and the ongoing European financial crisis were undermining consumer sentiment.

Investors responded to the news by sending Myer shares down 17c, or 8 per cent, to $2 — their lowest level since January and their biggest one-day fall in percentage terms since February last year.

Mr Brookes said the company could have maintained guidance for annual net profit to fall by no more than 10 per cent below last year’s $162.7m bottom line, but not without jeopardising long-term performance and its plans to push into online retail.

“We could have held our guidance and cut wages at store level and our investment in omni-channel, but our plan has been to look at the longer-term view of the company rather than take a short-term approach,” he said.

Myer has tipped $25m a year into increased staff hours to boost customer service, and plans to roll out an upgraded online sales offering later this year.

The third-quarter sales result was affected by its decision to leave or downsize a number of underperforming categories, including whitegoods, movies, music and computer games — without which sales would have fallen by only 0.2 per cent, or 1.6 per cent on a comparable-store basis.

The strongest product segments were young women’s fashion, womenswear and menswear, while online sales were up by more than 200 per cent compared with last year — albeit off what Mr Brookes described as a “very low base”.

Looking ahead, Mr Brookes said sentiment was being weakened by fears of the forthcoming carbon tax, despite consumers being compensated for any increased costs that may result.

“We’re fighting the perception that it’s going to have a demonstrative impact on the consumers’ hip pocket,” he said.

However, the carbon tax would only result in $4m-$5m in added indirect costs to Myer, Mr Brookes said, increasing its cost of doing business by no more than 0.5 per cent.

Myer’s winter stocktake sale had been revamped after a disappointing response from shoppers last year, when sales for the fourth quarter fell by 5.8 per cent, he said.

The company was negotiating with suppliers for excess inventory that it could sell at a steep discount, while individual prices would be marked down by as much as 60 per cent. The company would compete strongly on price, but it was not abandoning its measured approach to discounting, cutting its annual markdown budget by about $40m to a total of $300m.

Mr Brookes said Myer One loyalty card holders would be targeted by marketing campaigns to encourage them to shop several times during the month-long sale.