Solomon Lew’s paper losses on his 10.8% stake in Myer grew with yesterday’s 4% plus drop in the retailer’s shares after CEO, Richard Umbers slashed sales growth and return targets under his New Myer strategy.
Lew’s Premier Investments picked up the stake at an average price of $1.15 in a raid in late March that now looks mistimed.
No matter that no one forced Lew to splurge just over $101 million on the shares – he could have easily waited and swooped when the price was lower. But at yesterday’s close Myer shares were down 47% for the year so far and more than 40% since the raid which saw Myer shares spike to a peak of $1.26.
Myer shares fell 3.9% at the close to 73.5 cents.
That helps explain the continuing verbal assault on Myer, its board, management and strategy, an attack that will be refuelled by yesterday’s investor day by Myer.
Mr Umbers said average sales growth above 3% between 2016 and 2020 was no longer achievable at the department store chain because of stiff competition and weak consumer spending.
“Two years ago when we released the New Myer strategy we did not anticipate the extent of deterioration in market conditions,” Mr Umbers told investors at a strategy day.
“Our ambition of 3 per cent sales growth seemed appropriate at the time but it doesn’t seem appropriate now.”
Mr Umbers acknowledged it was taking longer than expected to turn the business around, but said that did not mean it was wrong to focus on young shoppers, popular brands, concessions and targeted closures.
“A tough external environment cannot be a reason to slow down or stop investment for the long term,” he said.
The Myer CEO cut the sales growth and return targets under his New Myer strategy after admitting that the retail environment was changing faster than expected.
Under new targets, Myer is now aiming to grow sales per square metre or productivity by 10% by 2020 rather than 20%.
Underlying earnings per share are forecast to grow by 5% compound annual growth rate between 2017 and 2020 and return on funds employed are expected to exceed 10%, down from the original target of 15%.
Myer also released first quarter sales figures, saying sales for the 13 weeks to October 28 fell 2.8% to $699.0 million, and same-store sales fell 2.1% (a weak result). Sales per square metre rose 3.6% after store closures.
Mr Umbers plans to close or shrink as many as 19 stores – four in the next two years and eight by 2025 – on top of the four store closures announced this year already. Some in the market had hoped for more cuts to be revealed yesterday
Myer will focus its investment on its top performing stores, adding new food venues(like David Jones is), beauty and grooming services and improved customer service.
"New Myer will evolve to ensure Myer’s relevance in a highly competitive and rapidly changing retail environment," Mr Umbers said.
"Customers are increasingly shopping online, and traffic to shopping centres and physical stores is declining."
"The financial metrics we established at the start of the journey were developed during a period of relative buoyancy and were appropriate for the retail environment at that time.
"We have recalibrated our metrics to reflect the tougher trading conditions and also to incorporate the evolution of the strategy into the future," he said.
Mr Lew said Myer’s latest sales figures show the department store’s strategy is reaping only “weeds” and that its incoming chairman (Gary Hounsell) is unelectable.
“I only see weeds, no green shoots,” Mr Lew said after the figures were released, according to statement.
"Today’s announcements by Myer are final proof that Garry Hounsell is unelectable as Chairman of Myer," Premier said in a statement. "Mr Hounsell has promised to deliver more of the same failed ‘New Myer’ strategy, and he will now reward the Myer management team for taking the company backwards." Premier said that Myer’s sales had dropped "alarmingly" even while troubled retailer Big W yesterday revealed its sales had grown in the first quarter.
