Shares in struggling department store chain, Myer Holdings dipped more than 5% yesterday even though the company did as the market expected it to do – report weak sales, a weak underlying profit for 2017-18, withhold dividend and announce a whacking great bottom line loss of $486 million because of write-downs and write-offs.
All in all the 2017-18 results from Myer seemed a case of situation normal. The company reported most of the writedowns and losses at the halfway mark when the bottom line was a loss of $476 million.
Sales fell, earnings weakened, it was a result that the market had been expecting. No one can claim to have been surprised by the size of the loss or the weakness of the underlying performance.
The company flicked previous CEO, Richard Umbers and other managers during the year. That should have been enough to signal that big write-downs and losses were going to be taken and blamed on the old management.
So the bottom line loss for the full year should not have come as such a shock and certainly did not justify the initial 7% fall in the value of the shares nor the drop at the end of trading. The shares ended down 5.3% at 41.2 cents. That’s a drop of 90% on its $4.10 listing price years ago.
Myer reported a statutory net loss after tax of $486 million for the 2017-18 financial year, compared to an $11.9 million profit in 2016-17.
The result was driven by significant costs of $541 million, including a $515 million write-down to the value of Myer’s goodwill and brand name.
On an underlying basis, stripping out all those write-downs, restructuring and store exit costs, and onerous lease expenses, Myer’s net profit fell 52% from $68 million last year to $32.5 million. The market had been looking for $33 million, so there should no moans about that slight miss.
There’s no dividend of course after a result like this and none looks likely for a while.
Myer Chair Garry Hounsell said in the statement yesterday: “The FY2018 financial results are disappointing. When it became apparent to the Board that the execution of the strategy was not going to deliver an improved financial performance, we made the decisive move to make significant leadership changes.”
“Following a global search, we appointed a highly experienced new leadership team, including John King as Chief Executive Officer and Managing Director in June 2018, Allan Winstanley as the Chief Merchandise Officer in June 2018, and Nigel Chadwick as Chief Financial Officer in January 2018.
“With these appointments, Myer bolstered its global retail and financial expertise, bringing best-in-class experience with highly relevant retail, merchandising and financial skills,” Mr. Hounsell said.
Myer said its second-half sales were down 2.6% to $1,380.9 million. Comparable store sales were down 2.4%. For the full year to July total sales fell 3.2% to $3,100.6 million, and were down 2.7% on a comparable store basis
Operating gross profit was $539.0 million, which represented an improvement on last year. Operating gross profit margin improved by 109 basis points to 39.0% in the second half compared to the previous corresponding period.
The Company also announced that it had signed a binding term sheet with its existing lenders to refinance its bank facility, extending the maturity until February 2021. This will provide a stable platform for the next 2.5 years whilst management work to improve the financial performance.
“The terms of the new secured facility initially provides core and working capital tranches totaling $400 million, creating ample liquidity, and relaxed covenant conditions with Fixed Charges Cover Ratio of 1.4 times and minimum Shareholders’ Equity of $400 million.
“The Fixed Charges Cover Ratio covenant will step up to 1.45 times after six months, then 1.5 times after 18 months. Myer will also be required to meet a Fixed Charges Cover Ratio of at least 1.65 times prior to paying dividends. As at the end of FY2018, the Fixed Charges Cover Ratio was 1.59 times.”
