No dividend from Myer, the struggling department store chain as it returned to the black in the six months to January, but the shares rose strongly yesterday.
Myer yesterday reported a $38.4 million half-year net profit, from a $476 million loss in the 2017 half thanks to big write-downs.
Myer shares leaped 15% yesterday to peak at 49 cents before closing up 11% at 45.5 cents. That rise wiped out the loss for the past year to put it up nearly 10%, and 25% for the past week.
But for now, the dividend remains off the table as the retailer looks to pay down debt and continue its restructuring.
The profit though was off the back of a 2.8% slide in sales in the six months to January 26 fell to $1.67 billion, and were down 2.3% on a comparable basis.
That is an improvement in the sales decline seen a year earlier when they fell 3.6% in a total basis and 3% on a comparable basis.
Myer said its profit margin rose by almost a full percentage point as it prioritised private label products as part of a strategy from new chief executive John King. Myer said sales of those products rose 3.7% in the half, while sales at concession stores within Myer again weakened, falling 5.7%.
“This result demonstrates the positive customer response to a number of initiatives… particularly during the all-important Christmas and Myer sale periods,” said Mr. King, who started in the top job in June last year.
“There are a number of… pilots underway across multiple stores to determine the customer response to new brands, preferred store layouts, brand adjacencies, and marketing, which will enable us to roll out these improvements to further stores.”
Mr. King said that Myer was now on the right path but “there remains a lot of work to be done”.
“The debt refinancing was completed in November 2018 and provides a stable platform for the next two years, with substantial headroom in all of our covenants. We remain focused on deleveraging and net debt was reduced by $57 million.
Mr. King highlighted that the continued strong growth in the online business, which represented the largest store during December, was particularly pleasing and reflected the significant potential for this business. For the next period, we will be continuing to improve the online experience, better matching the store range, including concessions, and making further improvements to fulfillment.
“There is a strong focus across the entire business on reducing costs that do not directly benefit the customer or enhance their experience in-store or online. We have put in place a more streamlined and accountable structure in the Support Office which is delivering positive results and we have identified numerous other cost-saving opportunities across the business which may be material in future years,” Mr. King said.
On an underlying basis, which excludes the impairments in the prior year, restructuring costs, the cost of closing stores and tax, Myer’s profit was up 3.1% to $41.2 million from $40 million a year earlier.
Looking to the rest of the year Myer warned the outlook wasn’t rosy.
“Sales are expected to be impacted by the exit of a number of brands and the introduction of several new brands, and there will be additional costs associated with these initiatives.
There will also be continued investment in two key areas:
Merchandise – to establish the new brands and to improve and expand our MEBs; and 2. Online business – to further improve both the customer experience and the efficiency of order fulfillment.
“In 2H2019, we also anticipate higher interest and depreciation costs to continue.
“A number of macro challenges exist that may impact discretionary spend, for example, uncertainty in the lead up to the Federal election and concerns around the housing market,” the company warned.
That though is a risk for all Australian businesses, especially those servicing the household sector such as retailers.
