Like OrotonGroup (ORL), Myer (MYR) chose the right day yesterday to release what were on the whole not bad interim results.
Certainly the market thought so and chased the shares higher through the day (as they did with Oroton). By the close Myer shares were around $1.24 and up more than 12% on the day.
The reason for the stock’s sudden popularity wasn’t hard to find – Myer upgraded the bottom end of its full year net profit forecast, despite half year sales growth slowing from the better than expected first quarter performance.
Sales rose 1.8% in the half to $1.8 billion. But comparable store sales increased by 3.3% in the half, down from the 3.9% rate in the first quarter, which is still solid (and better than the likes of Woolworths’s Big W, for example, but not Kmart).
Net profit after tax for the half year fell 4% to $59.7 million.
As a result the full year net profit after tax guidance range is now $66 million to $72 million, up from $64 million to $72 million.
An interim dividend of 2 cents a share will be paid, down from the 7 cents a share paid in the first half of 2014-15.
The cut was signalled in the renewal announcement of a year ago and the savings will go towards its $600 million cost, and yesterday the board further changed dividend payout policy, cutting the bottom end of the range to 50% of profit from the previous 60%.
Investors ignored a slight question mark in the result – a fall of 1.87 percentage points in its gross operating margin to 38.7%.
That was due to the added costs of the company’s $600 million growth renewal strategy and discounting of women’s wear and other items over Christmas.
But the retailer’s cost of doing business (CODB) fell 2.5% and the CODB to sales ratio slipped from 32.3% to 30.9% as the higher implementation costs were offset by lower operating costs
Analysts were encouraged by Myer’s online business continuing to grow strongly, up 70% on the previous year.
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Myer CEO Richard Umbers said in yesterday’s statement, “Only months into the first year of our five year strategy, we are pleased with the early progress and positive customer response to initiatives delivered under the New Myer strategy, particularly in our Flagship and Premium stores.
“Our first wave of initiatives to deliver wanted brands, enhanced customer service and an improved omni-channel experience have helped deliver comparable store sales growth of 7.1 percent across 12 Victorian and New South Wales Flagship and Premium stores.
"This is a very encouraging result. We have a significant pipeline of further improvements and the team has a strong focus on execution.
“Myer achieved a solid trading performance over Christmas and the Stocktake Sale period with a strong customer response to the Christmas Giftorium and new marketing campaigns.
“There has been significant progress in executing initiatives across each of our four strategic priorities of the New Myer strategy,” he added.
Investors seemed to have also overlooked a major change in the dividend policy.
Myer said its board had "also revised the dividend target payout ratio to between 50 and 80 percent of annual NPAT (previously 70 to 80 percent of annual NPAT)".
"Future dividends will be determined after taking in to account earnings, cash flows, balance sheet strength and being mindful of Myer’s capacity to fund the rollout of strategic initiatives,” the company said.
That means the chances of lower payouts has increased, especially if the renewal program takes longer to produce a sales and earnings revival.
