There’s something going on in Australian department store retailing – after years of underperformance, there are signs of life as the latest sales report from Myer (MYR) revealed yesterday.
The company’s five year $600 million turnaround plan is taking hold and lifting sales growth in a way many analysts had doubted a year ago.
In fact the solid Myer update stood in very stark contrast to a very weak quarterly report earlier yesterday from big US department store chain Macy’s which saw its shares crunched 15%.
In contrast Myer shares leapt more than 8% yesterday (still well under the float figure years ago of $4.10 a share). They closed up 6.6% at $1.20.
MYR 1Y – Myer sales creep higher
Macy’s quarterly report revealed the worst sales performance since the GFC for the chain, which is one of America’s biggest department store groups. Same store sales at Macy’s – excluding locations that were opened or closed over the past year – fell 5.6% in the three months to the end of April, the fifth straight quarterly decline and its worst three-month performance since the second quarter of 2009.
Myer said its third quarter sales rose 2.1% to $675.5 million, and were up 3.4% on a comparable store basis. Year to date sales are up 1.9% to $2,470.3 million, or 3.3% on a comparable store basis.
Now the US and Australia are very different countries, but there are some similarities. For example department stores are under pressure from new competitors offering a more focused product line in men’s and women’s fashionwear, homewares, shoes, etc.
The rise of Apple and its stores have stolen a valuable source of retail sales, wages are under pressure, price deflation is everywhere and consumers have deep pockets.
But in the past year Myer, with a new CEO in Richard Umbers and plan to revitalise the chain, seems to have struck gold. The first half saw total sales up 1.8% to $1,794.8 million, up 3.3% on comparable store sales basis.
The growth in same store sales in the three months to April 23 to 3.4% easily topped market forecasts of between 1.2% and 2.5%. It was a step up from growth of 2.9% in the second quarter and double the 1.7% in the April quarter of 2014-15.
In yesterday’s report, Mr Umbers said the “results build on our first half performance".
"We believe they further demonstrate that New Myer is moving in the right direction and that our customers are responding well to the New Myer strategy.
“The entire Myer team remains strongly focused on delivering our strategic priorities. The momentum in the execution of New Myer is continuing with the rollout of a significant number of new and expanded wanted brands and refurbished brand destinations as well as further improvements to customer service,” Mr Umbers said.
Mr Umbers reaffirmed Myer’s full-year net profit guidance of $66 million to $72 million, excluding implementation costs, compared with an underlying net profit of $77 million in 2015 and $98 million in 2014.
Myer expects pre-tax implementation costs associated with the New Myer (turnaround) strategy to be in the range of $20 million to $30 million this year, in line with earlier forecasts. In the first half, costs associated with the turnaround plan cut profits by 4% to $59.7 million.
Macy’s has closed 41 stores in the past year, cut staff and backroom people, trimmed operating costs such as advertising and marketing, done deals with suppliers and moved more deeply into online retailing, all to no avail.
Macy’s shares closed at $US31.38 in New York on Wednesday, down 51% over the past 12 months.
Myer shares are down 14% in the same time, but last October they hit a low of 85 cents, so the rise to yesterday is an impressive 65% plus.
And overnight further confirmation of the depths of the problem in the US department store sector with news that Kohl’s, another big chain, saw a shock 87% slump in quarterly earnings at same store sales fell 3.9%, instead of an expected rise of 0.7%. And Kohl’s is a biggie – it operates 1,167 outlets across the US (and plans to shut 18 this year). Sales fell 3.7% to $US3.97 billion. in the quarter.
And Ralph Lauren saw a 6% slide in same store sales in the latest quarter, and profit fell more than 60%, as the stronger US dollar hit its overseas sales and other income. And yet sales at discount and fast fashion groups such as TJ Maxx and H&M are growing strongly and these groups are the best performing part of retailing in America at the moment.
