Such is the pessimism about Coles that the newish owners of Myer Department Stores could probably float now, less than a year after purchase, and sell it at a profit to the $1.4 billion they paid Coles for it.
There seems to be a demand there for retail stocks that are ‘anything but Coles.’
Coles group is on the nose so the new owners of Myer are thankful they picked it up before the wheels fell off the former parent.
This was emphasised yesterday by an encouraging result from the private equity controlled Myer Group chain of department stores with it reporting a first half net profit of $57.09 million.
There are signs of a turnaround but the department store retailer still has a way to go before hitting the performance level that rival David Jones is currently operating at.
But Myer seems to be doing better than it was under Coles Myer ownership and seems to be more capable of riding the present solid conditions in retailing: that is something its former parent has been unable to do.
In fact the way Myer has gone about re-inventing itself shows there’s no special ‘rocket science’ in the process.
It’s having executives skilled in retailing and who know how to execute a strategy and stick to it in a retailing context, while giving customers what they want.
That’s something that has been totally lacking at Coles.
As we pointed out yesterday the small luxury goods operator, Oroton group, also showed up Coles performance in its sharp improvement, having made some significant changes last year to its business plan and personnel.
Myer though while still following DJS, seems to be heading in the right direction less than a year after being sold by Coles group last year to investors led by Texas Pacific and the Myer family.
It said yesterday sales rose 4.8 per cent to $1.8 billion, compared to the same period last year under the Coles banner.
Earnings before interest and tax (EBIT) rose 84 per cent to $123 million for the six months ended January 27, from $67 million and its forecasting EBIT between $150 million and $170 million for the full year.
“This result represents an adequate on track and pleasing start to the long term and permanent transformation of Myer,” executive chairman Bill Wavish said in a statement revealing the bare bones of the result while CEO, Bernie Brookes, said the company plans to increase the number of its department stores to 75 from 60.
Net Debt was reduced by $275 million (debt at acquisition of $979 million vs. $704 million at January 27 this year, which is what private equity buyouts are all about.
Myer’s margin, which measures earnings as a proportion of sales, rose to 6.8 per cent in the half from 3.9 per cent a year earlier. David Jones had a first-half profit margin of 9 per cent.
Myer plans to open five new shops in 2007, its first in three years, with plans for a further 12 outlets as it targets annual sales of $4 billion.
The new stores will increase the Myer chain to 75 outlets, compared to 37 for David Jones when its own current three-store expansion is complete, which includes a former Myer site in the Sydney suburb of Burwood.
Footnote: David Jones posted an underlying profit of $71.1m for the six months to 27 January 2007. That was 30 per cent higher than the pcp EBIT was 44 per cent higher at $93.3m. The company said it is on track to meet its forecast for an 8.5 to 13.5 per cent rise in earnings for the second half which would push after tax earnings over the $100 million mark.
