A ‘can do/should do better" reaction from investors yesterday to the weak full year result from Department store Myer (MYR) which revealed a 22% slide in net profit for the year to July 26.
The shares fell 13% to end on a very weak note at $2.15 on a day when the market was rocked by the ‘rogue’ jobs report for August.
Investors ignored Myer management’s hopes for a better year ahead as recent store refurbishments help lift sales, and punished the shares, especially in late trading.
Instead they concentrated on the cut in dividend (which was not confidence-inspiring) and the weaker than expected effort in 2013-14.
That meant Myer’s solid sales performance with a nice rise in comparable store sales for the year and the last quarter was overlooked.
Myer reported a net profit of $98.5 million for the 12 months to July 26, down sharply from $127.2 million year ago.
The board cut its final dividend to 5.5c per share, fully franked, down from 8c a share last year.
The full payout for the year was cut to 14.5ca share down from 18c in 2012-13.
The weak profit had been expected after directors had warned at the full year announcement a year ago (and the AGM, and the interim announcement earlier this year) of the negative impact the cost of the store revamps (and the rise in depreciation charges as a result) on the 2013-14 performance.
But it seems from the share price fall and early client contacts, the report was weaker than anyone had expected.
MYR YTD – Myer shares plunge
Total sales for the year were down 0.6% at $3.14 billion, for which Myer blamed the refurbishment work at four stores and the closure of two others.
Comparable sales, which exclude the impact of the refurbishments and closures, were up 1.2% for the year and 2.1% for the fourth quarter, which was perhaps the big bright spot in the announcement.
That this effort didn’t get plaudits from the market tells us investors remain a bit jaundiced about Myer and its performance. What they didn’t appreciate was the 4th consecutive yearly fall in earnings for the retailer.
Chief executive Bernie Brookes said the completion of the refurbishment work should help lift sales during the 2015 year.
"As expected, our investment in the business during the year adversely affected profitability however we look forward to the benefits beginning to be realised in FY2015," he said yesterday.
The net profit result fell short of market consensus forecasts of around $101.4 million.
The miss wasn’t much and might have been excused had Myer had a better track record in the previous three years.
But all the key measures of profitability were not good.
The company’s gross operating profit was down 1.4% to $1,286 million, the gross operating profit margin fell 57 basis points (bps) to 40.91%, the cash cost of doing business (cash CODB) increased by 3.3% to $1,033 million; earnings before interest, tax, depreciation, amortisation (EBITDA) were down 17.1% to $252.6 million and earnings before interest and tax (EBIT) were down 25.4% to $160.3 million.
Looking at that it’s no wonder investors were negative about Myer’s outlook. Apart from the improved comparable sales performance, there was little in yesterday’s figures to inspire confidence about Myer’s future.
