Investors gave the full year figures from department store chain, Myer (MYR), a very cautious reception. In fact you could go so far as to describe the reception as sceptical as some key measures fell short of target in the retailer’s turnaround strategy.
The shares dipped 1.5% to $1.275 by the close after Myer more than doubled profits in the first year of its New Myer revamp strategy.
A final dividend of 3 cents a share will be paid, whichis a resumption of the final payment after it was suspended a year ago to help pay for the early stage of the 2020 revamp. The interim was 2 cents a share, down from 7 cents in 2014-15.
That means the total for 2015-16 is 5 cents a share, still down on the previous year’s 7 cents a share.
The improvement was underpinned by strong sales through its concession outlets and its flagship city stores, but analysts pointed out that it is still trailing traditional rival David Jones, now under South African ownership.
Myer said total sales grew 2.9% in the full year to July 30, or 3% on a comparable stores basis, despite a noticeable slowing in the 4th quarter which saw top line sales edge up just 0.7% (or 1.8% on a comparable store basis). Myer management described conditions as a “more challenging environment”.
The full-year total sales result falls just short of Myer’s sales growth target of more than 3% for 2016-20. Sales per square metre increased 5.6%, a long way short of its target of a 20% improvement in this measure by 2020. And return on funds employed was 9.1% well short of the 2020 target of greater than 15%.
The South African-owners of David Jones have claimed the department store chain achieved 7% like-for-like sales growth for the 52 weeks to June 26.
Myer’s full-year profit increased 103% to $60.5 million, while net profit after tax and before restructuring costs was down 10.6% to $69.3 million, in line with guidance of between $66 million and $72 million.
“There is no doubt that as a result of our strategy, Myer is a measurably stronger business today than it was a year ago,” CEO, Richard Umbers argued in yesterday’s announcement.
"Since August 2015, we have introduced over 850 new or upgraded brand destinations and markedly improved our customer service, particularly our flagship and premium stores."
Sales through Myer’s top-flight stores in Victoria and NSW rose a solid 5.6% on a same-store or comparable store basis. Myer said improved customer purchases of its concession brands drove sales in this segment more than 21% higher.
But that was a one off and sales of Myer’s exclusive brands fell 6.7% in the year, while national brand sales improved by only 1.4%.
Operating gross profit margin fell 164 basis points to 38.7% (a constant source of concern for some analysts about Myer’s performance) as higher sales of Myer’s new brands and concession apparel failed to hold margins in the face of a weaker Australian dollar. But the cost of doing business fell 93 points, to 32.5%, which was an encouragement.
Myer said it had accelerated plans to reduce its total floor space by 20% by 2020, announcing it will exit its Logan store in Queensland in f2017-18 and it has scrapped plans for a new store in Darwin.
The chain will also exit space at stores in Cairns in North Queensland and at Blacktown and Castle Hill in Sydney this financial year to drive “productivity improvements and a reduction in operating costs”.
"Our commitment to improving productivity has led to a reduction in operating costs and we remain focused on reshaping our store footprint and investing in stores that align with our core customers," Mr Umbers said.
These cutbacks are in addition to its previously announced store exits at Brookside, Orange and Wollongong this financial year and the decision not to proceed with planned stores at Coomera (Queensland) and Tuggerah (on the NSW Central Coast).
Myer will also start major refurbishments and upgrades at its Melbourne, Sydney, Maroochydore, Eastland, Doncaster, Chatswood and Pacific Fair stores this year. But the message is that Myer is cutting (or shrinking) itself to a more management, profitable size.
Digital sales grew 74% over the year and Myer said profits were increasing at a faster rate than sales through this rapidly expanding channel.
The current financial year should tell us if the retailer is on the right track. Up to the end of 2015-16 Myer has endured six years of falling profits. 2016-17 has to show a profit rise, and for some of those metrics to look more achieveable.
