Myer confirms sales drop, more store closures

myerMyer’s struggles to overcome sluggish consumer spending have been confirmed, after the department store giant confirmed a fall in sales and profit.

Fierce rival David Jones last month called out falling consumer confidence as a major factor behind a 0.7 per cent fall in full-year comparable sales, and Myer has followed suit, today reporting Net Profit After Tax (NPAT) of $67.9 million on total sales 1.4 per cent lower than the previous year, in part reflecting the closure of three stores, and down 0.2 per cent on a comparable store basis.

The retailer’s statutory net profit for the 52 weeks to July 29 of $11.94 million, was down 80.3 per cent on the previous 53-week year, hit by $13.9 million in costs and significant items of $42.1 million.

Total sales slid 2.67 per cent to $3.2 billion, reflecting the closure of three stores, the write-off in the value of its 20 per cent stake in Topshop’s Australian franchisee and the impairment in the value of its struggling sass & bide brand.

“We have made significant progress to deliver new Myer [strategy] which has assisted the company to withstand the challenging retail trading conditions characterised by heightened competition, subdued consumer sentiment and discount fatigue,” said Myer chief executive officer and managing director, Richard Umbers.

“We are obviously disappointed to have not reached our target of exceeding last year’s NPAT of $69.4 million and that progress against our metrics that matter is slower than we anticipated.

“However Myer has become a leaner, more productive and efficient retailer, better placed to compete in a rapidly changing environment. In the year ahead we will be rolling out further initiatives particularly in our strongly performing omni-channel business in anticipation of a further wave of change in consumer and competitor behaviour,” he said.

Umbers has been trying to turnaround the business for two years but Myer already warned in May that “challenging trading conditions” would continue to hurt sales.

“The financial result isn’t where we want it to be, and the metrics that matter reflect that, that’s disappointing,” Umbers said in an analyst briefing on Thursday morning.

The retailer reported a 3.3 per cent fall in its third quarter sales in May with comparable sales down two per cent.

“We are building a more powerful and profitable omnichannel business and the performance of our online business was a standout of the result with sales up 41.1 per cent,”  said Umbers.

Omnichannel sales, which includes sales via 2,500 in-store iPads, hit $177 million during the year, representing 8.2 per cent of total sales in July 2017. Click & collect now represents 15 per cent of orders for the department store retailer.

More store closures

Myer also confirmed that it will not be renewing leases at its Colonnades, Belconnen and Hornsby locations, in keeping with its turnaround strategy that has seen the closure of 74,670m2 of store space overall.

“We continue to make significant progress in our productivity agenda with a 24,368m2 reduction in space resulting from store closures at Wollongong, Brookside and Orange, space handback at Cairns and Dubbo as well as a space hand back of 50 per cent at our Queensland DC and over 30 per cent of our support office floorspace,” said Umbers.

“Myer has continued to focus on a more innovative and experiential retail offer including the launch of cafes, pop-up shops, an ice rink in our Sydney store, a marketing campaign partnering with Katy Perry and dedicated clearance floors now in eight stores.”

The retailer has continued to refresh its merchandise range, with the introduction of a number of new wanted brands including Forever New, Roxy, Quicksilver, Darren Palmer Home and 2XU, in addition to rolling out 72 upgraded Myer Exclusive Brand (MEB) master brand installations and dedicated service models for Basque, Piper and BLAQ.

“Building on our progress to create a leaner, more efficient and resilient operating model, we have successfully completed the rollout of the first phase of our cloud-based workforce management tool as well as the first phase of our merchandise planning tool, both of which are delivering productivity benefits to the business,” said Umbers.

Sales in the fourth quarter were down 1.5 per cent and down 0.2 per cent on a comparable stores basis. Operating gross profit was $1,220.4 million, with margin down 58 basis points to 38.12 per cent

In July, Myer announced the decision to write-down the full carrying value of its 20 per cent stake in Topshop’s parent company, Austradia, of $6.8 million after the business was placed into administration and unsuccessful negotiations to retain the brands as concessions.

Commenting on today’s result, Hianyang Chan, senior research analyst at Euromonitor International said Myer continued to struggle within the department stores category, in creating a defined position in the competitive and challenging retail environment.

“It has been a year of transformation for Myer as they aim to lift top-line sales by experimenting with a number of initiatives such as off-price retailing, writing off its stake in the Topshop brand, a partnership with AfterPay, streamlining private labels, acquiring brands such as Marcs and David Lawrence and optimising store footprint,” he said.

“The inexorable march of technology has wired its way into the retail sector and e-commerce giants such as Amazon, Alibaba and Rakuten are formidable powerhouses that are disrupting retail businesses globally, and categories such as consumer electronics and appliances, home and garden, apparel, accessories and footwear are increasingly migrating online.

“The impending arrival of Amazon will pose a threat to most major retailers and Myer will be no exception. Amazon’s closed system allow a consistent and high quality consumer experience that will potentially win over many consumers in Australia and steer them away from traditional bricks and mortar stores.  In a highly competitive, fast moving industry where consumers’ expectations and demands change rapidly, it is expected that Myer will continue to push to offer even leaner, faster responses to consumers’ demands, embarking on innovative marketing campaigns and further enhancing their omni-channel offerings to improve customers’ shopping experience.”

The Myer board declared a final dividend of 2.0 cents per share, taking the full year dividend to 5.0 cents per share fully franked.

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Comments

3 comments

  1. Michael Baker posted on September 14, 2017

    Really good to see Myer closing more stores. The company is still at the beginning of this process and many more will follow. It is healthy for Myer and healthy for the underlying retail properties, which can now be leased to more vibrant tenants. I do wish Myer would stop the tedious habit of blaming the demand side (consumer confidence, tough trading conditions) for its problems. Its problems are rooted firmly in format obsolescence and a lack of compelling merchandise. And as for 'discount fatigue', what on earth is Mr Umbers talking about? Consumers are anything but fatigued by discounts. They are fatigued by years and years of overpaying, a problem which is now being rectified by foreign competition. reply

  2. Jeanette Bennett posted on September 14, 2017

    I think we are all fed up with hearing about the bad retail environment and on line sales which are supposedly effecting our retailers. Why Why Why do Myer (and David Jones) continue to stock product of retailers who have their own stand alone stores, metres from their front doors and with better customer service? Brands such as Country Road, Witchery, Top Shop and so many more. The World is full of brands that Australia does not have - come on Myer and DJ's it is not rocket science! reply

    • Jan posted on September 15, 2017

      I agree with this. David Jones is pretty much the same. They make such a big deal of signing up "brands" when they have their own stand alone shops in every shopping mall and city centres. I find their stock boring and irrelevant. reply

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