Myer (MYR) went backwards, as forecast in the six months to January 25, leaving rival David Jones (DJS) better placed in the two horse race between the two department store retailers.
David Jones saw a dip in its interim earnings because of weak results from its credit card business, but a rise in profits from its department stores.
Myer yesterday revealed it had suffered an 8% slide in its first half profit, thanks to higher costs and weaker margins.
Myer told the ASX yesterday it earned a net profit of $81 million for the six months to January 25, down from $88 million for the same period a year ago.
Topline sales increased by just 0.3% over the half, but were up a stronger 1.2% on the more accurate comparable store basis.
In fact in the three months to January 25, like-for-like sales rose 1.7% – well ahead of market forecasts of about 0.5% – after rising 0.4% in the October quarter and 1.7% in the year-ago period.
In contrast, David Jones’s second-quarter same-store sales rose 2.1%, the strongest growth for more than three years.
And when it came to rewarding shareholders, David Jones did better. Myer revealed it had cut interim dividend to 9c a share, down from 10c in 2013. But David Jones left its interim unchanged at 10c a share.
Myer CEO Bernie Brookes said it was a positive result given the disruption caused by refurbishment work at three of the company’s top stores and the closure of another shop.
"It was encouraging to achieve total sales growth despite significant sales disruption caused by three of the top 20 stores being under major refurbishment and the closure of our store at Dandenong (VIC)," he said.
"It was also pleasing that this growth was achieved on top of strong growth in the previous corresponding period."
The company’s gross profit margin declined 21 basis points to 41% due, in part, to price discounting as part of its stocktake sale.
Mr Brookes said the company now expects gross margins in the second half to be flat – compared to previous guidance for gross margin gains around 40 basis points – and cash costs of doing business are expected to rise 4% to 5%, in line with earlier forecasts.
But he also said,"Cost growth headwinds are expected to moderate during FY2015 and together with the strategic initiatives outlined above are expected to deliver an improvement in earnings momentum in FY2015.
"Whilst we anticipate that cost growth pressure will begin to moderate towards the end of FY2014, these higher costs together with an increase in depreciation led to a 10.5 percent reduction in EBIT to $127 million.
"The strong cash flow result and lower interest rates led to a reduced interest cost resulting in NPAT for the period being down 8.1 percent at $81 million," he said.
It should be pointed out that Myer’s sales growth would have been stronger if not for the crash of Myer’s online store for a week after Christmas (at the start of the big summer sales) and the disruptions at three stores and closure of two others.
Looking to the rest of this year, the company said in yesterday’s statement that, "Given continued pressure on discretionary income and uncertain consumer sentiment, we remain cautious about the trading environment for the remainder of the year.
"Sales are expected to benefit from the completion of the refurbishment of the Adelaide (SA) store in May 2014 and the Indooroopilly (QLD) store refurbishment expected to finish during June 2014.
"In addition, the Melbourne City (VIC) store is expected to benefit from the opening of 7,000 square metres of new space within the Emporium development adjoining the store from May 2014 as well as the return of customer traffic flow into the store via the new development.
"Offsetting this, the closure of the Dandenong (VIC) and Elizabeth (SA) stores and the refurbishments at Miranda (NSW) and Macquarie (NSW) will negatively impact sales in the second half.
"We continue to believe online sales will double in FY2014 (over FY2013) and that the online business will reach break-even during the 2014 year. Ongoing investment in omni-channel is driving continued growth in online sales supported by our new online fulfilment centre in Melbourne and our new order management system," the company said yesterday.
Both Myer and David Jones shares fell yesterday in the general slide of the wider market in the wake of the US Federal Reserve’s change of policy, which was an overreaction.
Myer shares fell 5.6% to $2.52, partly because the result was under forecasts (analysts apparently missed the impact of the store refurbs and closures on sales and margins). As well, investors are starting to worry that the David Jones merger might become to difficult.
And, David Jones shares dipped 3.6% to $3.20 because investors are starting to think that the merger with Myer isn’t a good idea for the company and shareholders.
