More moaning from Myer (MYR) CEO Bernie Brooks yesterday about the impact of high wages, rents, taxes, online purchases and utility costs on the retailer as he tried to explain an unexpected 8.7% fall in net profit, to $127 million for the year to July 27.
That was on an 0.8% rise in turnover to $3.14 billion as second half sales fell.
In fact the $127 million earned in 2012-13 was down 8.7% from 2011-12’s profit, which in turn was down 14.3% from the preceding year. And Myer’s earnings in the July half of 2012-13 were only $39.1 million, 25% down from those in the second half of 2011-2012.
But that 25% fall in second half profit becomes a drop of 15.3%t if a revaluation of an option to buy the remaining 35% of the Sass & Bide brand for $309 million, is excluded), In fact much of the fall in earnings was due more to a sharp spike in Myer’s cash costs of doing business which were up 3.7% in the second half, with the higher depreciation bill based on the cost of spending $90 million on new stores and fitouts.
But despite the gloomy tone, there were more than enough positives from the financial nitty gritty of the report to suggest that Myer’s underlying business remains pretty solid.
MYR 2Y – Myer shares rise, but not supported by weak results
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But you would not have picked that from Mr Books latest round of complaints which were about things that impact every other retailer, who quite often have different stories to tell.
His moans and groans ring false when you consider that while its tough in retailing, some are doing well – such as Kmart (the Wesfarmers subsidiary), Super Chef Group, the Reject Shop and Specialty Fashion group.
All (plus other retailers) face the same problems Myer does (and David Jones for that matter), and yet none have moaned and groaned like Mr Brooks did yesterday (well, with the exception of perhaps David Jones Paul Zahara and Solomon Lew, the Melbourne retailer who controls Just Group).
Mr Brooks seems to be blaming external factors when perhaps he and the board should be looking closer to home. Even Gerry Harvey has muted his complaining as Harvey Norman has lifted its game and seen growth return in Australia (but not in his operations in NZ, Singapore, Ireland and Slovenia).
Mr Brookes also urged the new Abbott government to look at closing the GST loophole that allows online shoppers to spend up to $1000 on overseas goods without paying tax.
"Retail continues to be the biggest private employment sector in the country," Mr Brookes said.
”All Australian retailers are being impacted by rising employment costs, escalating occupancy and utility costs, and a GST loophole providing an unfair advantage to foreign retailers. The sector would benefit from reform to help drive productivity and become more competitive in an increasingly global marketplace.” But that has been a broken record with Mr Brooks for almost two years now.
Quite often people buy offshore because they can’t source the products here at a competitive price, or can’t source the products at all, or have suffered from bad service from existing retailers such as Myer and won’t return.
But rents are a problem for the retailer’s dealings with the likes of Westfield Trust and other mall owners, utility costs are as a result of higher electricity costs from big groups such as Energy Australia, wages costs are a concern, but that is a factor common to all retailers, just not Myer and taxes also impact every retailer, not just Myer.
But if you look at Myer’s performance, there was that noticeable second half slide (as there was for quite a few retailers) after what was a solid first half.
Among the highlights for Myer’s first half was a better than expected profit of $88 million for the six month period, and sales up 2% for the six months with a 1.7% first quarter rise becoming a 2% second quarter improvement. On a same store basis (the best way to compare performance) they were up 1.4%. Contrast that to the 0.8% rise in topline sales for the year and the 0.4% rise in comparable store sales, which indicates the extent of the second half slide.
And earnings before interest, tax, depreciation and amortisation fell 2.3% top $305 million in the year.
Contrast that with the performance of Kmart, the lower level department store chain owned by Wesfarmers. it lifted sales 2.7% to $4.2 billion for the financial year, with comparable store sales increasing 2.1%. And, more importantly, Kmart delivered earnings of $344 million for the year, 28.4% up on last year.
Now Kmart has similar challenges to Myer, and yet the performance comparison is between chalk and cheese.
The company declared a final dividend of 8c a share, fully-franked, down on last year’s 9c. That takes the total dividend to 18c (19c a share) in 2011-12.
But despite his whingeing, the results are better than he lets on. The gross margin rose to 41.7%, a rise of 40 points which was a solid effort in a tough year, especially the second half.
Gross margin improved because Myer sold more of its "Exclusive Brands" (up $40 million to 20% of sales) and sales by concessions were up $18 million to 15.4% of sales (that means higher margins). National Brand sales fell by 1.6% and now account for 64.6% of sales (FY2012: 66.1%).
The company’s cash cost of doing business rose by $30 million to $1,007 million. "The 3.1 percent increase was attributable to: increased labour costs, store occupancy (rent, utilities, rates and taxes), operating expenses associated with growth initiatives including store refurbishments, as well as investment in omni-channel and Myer Exclusive Brands development. The increase was partially offset by a reduction in support office costs," Mr Brookes commented yesterday.
But stock turns were up and overall inventory remained clean at $364 million, down 5.7% from the previous year’s $386 million. Underlying inventory, excluding new and closed stores fell 7.4% to $333 million. Creditor days were stable at 70 days.
A big reason for the bigger profit fall after tax than before tax was a sharp rise in depreciation of nearly10% to $90 million (another big rise will happen this financial year and in the 2014-15 year) from the "substantial capital investments made in previous years". That’s a self inflicted additional cost.
Net interest expense fell from $33 million to $26 million principally due to a reduction in average net debt and lower interest rates and the company’s net debt reduced by $43 million to $340 million. Cash flow rose 11% to $300 million, so it can easily finance itself and keep growing.
These are all hallmarks of a well run business. But you wouldn’t know that from the CEO’s complaining.
Myer shares eased 3% or 9c to $2.79.
