per cent, while comparable sales growth for Myer was 3.9 per cent. Companies can fudge earnings with some clever bookkeeping, all quite legitimately within accounting standards and corporate regulation, but fiddling with sales figures, especially like for like sales, is not as easy. The main instrument used by some retailers to boost revenues in a tough period is to tap suppliers for marketing and promotional funds, sometimes bringing forward contributions. David Jones and Myer may well have benefited from deals on the realignment of brands and merchandise ranges, and both would have been bolstered by significant clearance activity and perhaps a more confident consumer, but the sales increases for both department stores are above expectations. David Jones’ results are particularly impressive with first quarter of the new financial year sales jumping to 10.4 per cent on full year 2015 financial year revenues of a tidy 6.4 per cent, and with like for like growth of 3.7 per cent, the highest growth since 2007, when the retailer posted an 8.9 per cent lift in turnover. With sales up just two per cent in the first half of FY15, David Jones would have increased sales in the June half-year by more than 10 per cent, and has now maintained that level of growth into the new financial year. David Jones’ sales were boosted by new store contributions, but the initial returns from changes that have already been implemented by the South African retailer, Woolworths, are impressive and indicate that the retailer is attracting new customers and re-engaging with jaded existing customers. To be fair, there were encouraging signs of an improvement in trading for David Jones before Woolworths acquired the business, but the retailer has certainly stepped up a gear. The question for David Jones is just how sustainable is the growth in revenues when other, less glamorous, department stores such as Target, Big W and Harris Scarfe are struggling. But the retailer is certainly off to a strong start under its new owners and making life uncomfortable for Myer. The share price for Myer has recovered from its nadir on the strength of some promising changes in the apparel brands portfolio, including an alignment with Topshop, closure of under-performing stores and the first quarter sales lift. However, investors who bought shares at $4.10 when Myer returned to the Australian Stock Exchange in 2009 are still well out of pocket, with current prices just above $1 and continuing negative sentiment about future prospects. McClintock faces the music at AGM Myer narrowly avoided a rejection of its remuneration report at the shareholders annual meeting last week, a protest vote against the golden handshake for former CEO Bernie Brookes. The rebuff by 22 per cent of the shareholders to the remuneration report followed the cold shoulder shown by investors to a capital raising by Myer for store upgrades, online channel development and other operational initiatives designed to boost sales. The annual meeting was tense and shareholders and the wider investment community are yet to be convinced that new CEO, Richard Umbers, has the answers and, perhaps more importantly, the execution skills to reinvigorate sales and earnings. Umbers insists that Myer has a leadership team with the depth of talent and diversity of skills and experience to implement the $600 million turnaround strategy. He argues that department stores can thrive in the new retail environment if they can create the right instore experience, allocate space to wanted merchandise with localised and optimised merchandise ranges and an omnichannel offering. The Myer trajectory on sales growth is certainly pitched more modestly than is David Jones. Umbers is targeting average annual sales growth of more than three per cent for the next five years, with a sales per square metre gain of 20 per cent over that period. While the forecast of net earnings for the 2016 financial year is between $64 million and $72 million, Umbers expects earnings growth ahead of the three per cent sales increase target to be locked in by the 2017 financial year. The current year earnings forecast is below the $77.5 million booked in FY15 and reflects Myer’s investment in its business improvement strategies and the costs of cleaning up inventory through stock clearances. Umbers told shareholders at the annual meeting the company could potentially rationalise up to 20 per cent of its floorspace with discussions proceeding with “selected landlords” about the future of lower performing stores. Umbers said the retailer wanted to focus more effectively on service, empowering store managers to build and develop their teams and to optimise staff rosters. Addressing shareholders last week in something of a mea culpa speech, Paul McClintock, Myer chairman was contrite, noting that shareholders, like senior staff or ‘leaders’ within the business, deserved an explanation on the direction and performance of Myer in the past three years. McClintock said the board had recognised the need to build its leadership team with former CEO, Bernie Brookes, having indicated his intention to leave the business and, with unsatisfactory bottom line results in FY15 the board had to take a “deep review” of its strategic settings. McClintock said “energy and sparkle” was returning to Myer with the new Myer, “delivering the best ever array of wanted brands, experiences and service”. “We are bringing the love of shopping to life. Across our company there is a renewed sense of momentum and opportunity.” McClintock conceded that the excitement for the changes taking place at Myer must be balanced by an acute understanding and a clear recognition that the road to ‘New Myer’ has not been an easy one, particularly for shareholders with the price of their scrip falling recently as low as 82 cents and no dividend for the latest financial year. “All of your directors understand the depth of feeling among our investors regarding Myer’s recent financial performance, and the disappointment that comes when a company decides that its current strategic direction is not aligned to its changing environment.” McClintock described the FY15 results as “unquestionably a disappointing result” that supported the case for a comprehensive agenda for change, a refined strategy that requires some ongoing shareholder patience with benefits of new initiatives unlikely to materialise before FY17. Focusing on the strategic direction of Myer, McClintock said as a newly listed company in 2009, the retailer embarked on a path to build value by growing its store footprint and focusing on higher margin Myer Exclusive Brands. “This strategy was well articulated at the float, and faithfully implemented. In recent years, as results started to fall, this approach was put under increasing scrutiny, but there was still the prospect that the investment in our stores would deliver an improved result in FY15. “By this time last year, we accelerated the work already underway to review the strategic settings against the reality of the dramatically changing Australian retail environment,” McClintock said. “As it happened the world changed faster than the original strategy envisaged, leading to a growing cost base and flat revenue. “Our cost line was growing faster than our sales, and for repeated years, our profit was moving in the wrong direction. “When we completed our deep dive on the impact of these changes to our customer base, we found a telling picture of declining relevance to some of our most important customers.” Refining, reshaping, restoring McClintock said Myer is now refocusing its operations around productivity metrics of sales and profit per square metre and is refining and reshaping its store network. McClintock said Myer’s operating footprint will become smaller but more productive. In what he described as a sobering message for shareholders to hear, he said the task of restoring value to the company will be a long one and it would take time for Myer to earn back the confidence of the market, and the enthusiasm of customers and shareholders. McClintock told the annual meeting that as a major Australian employer, confronting digital disruption, and an evolving economic and social market place, change has become the new normal for Myer, a key factor in the development of an omnichannel, 24-hour open for business approach to retailing. Umbers, who was responsible for Myer’s online retail platform before his elevation to the CEO early this year, emphasised the importance of the omnichannel approach and continuing work in enhancing users’ online experience and optimisation of the online merchandise range, as well as implementing improvements to fulfilment. McClintock summed up a somewhat tumultuous FY 2015 as, “a year of intense focus on laying the strategic foundations for our future success”. “In 2016, the hard work of delivery gains momentum and we look forward to demonstrating the successful execution of our strategy and by 2017, successful implementation will see a return to sustainable sales and earnings growth.” For long suffering investors in Myer, the reflections on the failed strategy outlined in the 2009 prospectus were indeed sobering, while the promise of better times ahead was welcomed, but embraced more in hope than confidence with the patience McClintock asked for wearing thin. The first quarter sales lift for Myer was obviously well short of David Jones’ performance. but the real concern for Myer shareholders was whether or not they could believe that it was the start of a long-term sustainable growth trend. Want more Inside Retail? Subscribe to Inside Retail Weekly now and get our premium print publication delivered to your door every week.