Myer warns on fourth quarter profit as sales decline
The struggling department store said on Wednesday that its third quarter sales declined by 2.7 per cent to $635.3 million, ahead of analyst expectations.
Sales declined 3.1 per cent on a comparable store basis for the 13 weeks to 28 April, an improvement on the 3.6 per cent decline experienced in the second quarter.
Citi analysts had expected Myer’s third quarter sales of $621 million and a comparable sales decline of 3.5 per cent.
But executive chairman Garry Hounsell threw a cloud over fourth quarter profit on Wednesday, saying that unseasonably warm weather had impacted winter sales.
“In February we announced a renewed focus on product, price and customer service, which delivered encouraging results during March,” he said.
“However, as reported by a number of other retailers, the unseasonably warm start to winter has impacted sales, particularly in winter apparel, shoes and accessories, which may impact profit in the fourth quarter,” he said.
Hounsell gave no specific guidance on Wednesday but analysts are concerned that if earnings fall too far Myer could be at risk of breaching its banking covenants.
Myer has been in talks with lenders in recent months to negotiate terms on a new debt facility after booking a $515 million write down in March.
Critical shareholder, Premier Investments chairman Solomon Lew, has expressed concern that Myer is in a precarious financial position in relation to its covenants.
A Premier spokesperson said on Wednesday that shareholders should prepare for another profit downgrade.
“On today’s evidence that Myer’s extreme discounting program has failed to arrest its sales decline, Myer shareholders should brace themselves for yet another profit downgrade during the fourth quarter,” a spokesperson said.
“Myer has been selling dollar notes for 50 cents and it’s still not working to improve sales, but shareholders will yet again be left to pick up the tab when Myer announces its disastrous full year loss.”
The warmer start to Winter has impacted ragtraders across the country over the last few months, spurring elevated levels of discounting heading into June that has put pressure on margins.
Hounsell said in March that he was pushing staff to “trade the business harder” and was taking a number of steps to improve the competitiveness of the business, including more discounting.
Citi analyst Bryan Raymond said Myer had delivered a credible third quarter result in a challenging environment.
“LFL sales momentum has not meaningfully improved, but is not getting worse, despite a headwind from weather,” he said.
Citi said Sydney average temperatures in April were four degrees above 2017 and the long term average, while Melbourne and Brisbane were two degrees above 2017 and the average in April.
It was also announced that incoming chief executive and managing director John King is due to start in his new role on 4 June, following the approval of his visa.
“John has already visited many stores, talked to team members and customers and understands the significant task at hand in turning around the business,” Hounsell said on Wednesday.
King will replace departed chief Richard Umbers, who left earlier this year amid declining sales that Myer has yet to turnaround.
Myer’s year-to-date sales were down 3.4 per cent as at 28 April to $2.35 billion, while comporable store sales were down three per cent.
Third quarter online sales increased by 49.4 per cent to $35.9 million. Online year-to-date sales were up 49 per cent to $141.1 million.
Citi said online sales are now around six per cent of Myer’s total sales, estimating that bricks and mortar LFL sales fell by five per cent in the third quarter, marginally better than the first half (-5.8 per cent).
“The continued strong performance in our online business is pleasing and we will continue to invest in growing this business,” Hounsell said.
Myer has forgone an investor briefing for its third quarter results, and announced on Wednesday that from the start of FY19 it will no longer provide quarterly sales updates to the market.
UPDATED 3:57 AEST