Myer, the struggling department store chain revealed the bad news to the market yesterday – lots and lots of red ink and no assurances that there won’t be more following later in the year.
No interim dividend, as previously confirmed, a fall in revenue and a fall in profit, and a stonking great half billion dollar write down in the value of its name, stock and other assets.
As a result the retailer reported a loss of $476 million for the first half of 2017-18.
Myer shares jumped nearly 6% to 45.5 cents on the news, then reversed as investors looked through the figures and sold off the shares which lost 3.5% to close at 41.5 cents.
The company told the ASX on Wednesday said it was recording a non-cash impairment of $515 million against the carrying value of goodwill and brand names.
Without that charge and $23 million in other charges, net profit for the six months to January 27 would have been $40.1 million, down from $62.8 million in the same half last year, following a 3.6% fall in total sales for the half to $1,72 billion. They were down 3% on a same store basis.
Myer says sales have improved since balance date, but conditions remain “volatile”. That was in the upper end of Myer’s profit forecast from February 9 of between $37 million and $41 million.
Myer is operating without a chief executive after Richard Umbers quit last month after a massive downgrade of expectations for the half and full financial year, with chairman Garry Hounsell stepping up as executive chairman.
Mr Hounsell said the result was “unsatisfactory” and reflected a number of mistakes Myer had made, including failing to respond to the heightened competition in the market before Christmas.
He vowed that a "renewed focus on product, price and customer service is expected to re-engage our traditional customer base.”
Myer said it remained within all conditions put on its debt by its lenders – a key concern for investors going into the result.
The write down has shrunk Myer’s net assets from $1 billion to $580 million – above the $500 million minimum threshold agreed with lenders, while its fixed charges cover ratio sat at 1.65 times, above the covenant of 1.5 times.
The result is likely to add fuel to the conflict raging with Myer’s largest shareholder Solomon Lew, whose Premier Investments wants to call an extraordinary meeting of shareholders to change the retailer’s board.
But for all the problems there were a couple of positives in the result. First up at the end of the period, inventory was $31.1 million below last year, meaning the company hasn’t been caught overstocked with unwanted products that have to be sold off at a loss, as has happened in the past.
And Myer said net Debt at the end of the period was $27.9 million higher than last year resulting in a net debt position of $19.9 million, with available liquidity of $400 million. Cash capex was $54.5 million compared to $59.0 million in the previous corresponding period.
