By Eli Greenblat
The revival of Myer, the long-ailing department store, is gathering pace after the retailer unveiled its strongest sales on record and said it expected profits for the first half of the financial year to double.
Buoyant trading conditions in the holiday shopping period – beginning with Black Friday sales in November – are expected to leave the group with smaller debts and as much as $200m in the bank.
Myer told investors on Tuesday that total sales had risen 24.8 per cent for the five months to December 31, compared with the same period one year earlier; in-store sales were up 37.9 per cent. Online sales fell 9.4 per cent from the levels achieved during the Covid-19 pandemic in late 2021 when most of the country’s capital cities were falling in and out of lockdown.
In comparison to periods not affected by the pandemic, the retailer said total sales were up 18.9 per cent on the first 6 months of the 2020 financial year.
Given Myer books the overwhelming majority of its profit in the first half of the year as it captures the bulk of Christmas sales, the department store is on track to post full-year earnings close to its peak when it was floated in 2009 by its then private equity owners, TPG Capital and Blum Capital.
Three years ago, Myer shares were trading as low as 10c. Five years ago, it shocked investors with almost $520m in writedowns and a $486m loss, raising fears it could fall into administration.
Myer shares rose 4.5c, or 5 per cent, to close at 90c on Tuesday, capping a run which has increased the company’s valuation 124 per cent over the past 12 months.
The recovery has come as consumer spending continues to be resilient – with pent-up funds saved during the pandemic softening the impact of higher interest rates – and as Myer’s chief executive, John King, proceeds with a strategy of closing stores and reducing the amount of floor space.
On Tuesday, the company said department store sales for the six weeks to Christmas Eve were up 8.7 per cent on the prior corresponding period. Sales during the stocktake period had also outperformed the previous corresponding period, Myer told investors.
Myer expects its first-half net profit after tax to be between $61m and $66m, up between 89 per cent and 104 per cent over the first half of 2022, or between 54 per cent and 67 per cent higher than the first-half of 2020, before the pandemic closed stores.
Mr King said the results were the best since the 2004 financial year, when the company began to keep the figures, and reflected improved profitability.
“As with most retailers, we remain cautious on the macroeconomic environment for the remainder of the calendar year but are equally confident in the continuing momentum we have,” he said in a statement.
Previously based in Britain – where he worked in executive positions at Sainsbury’s, Marks & Spencer and House of Fraser – Mr King was appointed in 2018.
Under his watch, profits have risen from $33.2m in 2019 and a loss of $172.4m the following year driven by the pandemic and impairments, back to $46.4m in 2021 and $60.2m in the financial year to June 30.
Myer’s cash reserves have also steadily improved, highlighting its growing balance sheet strength, to put on $74m in cash in 2022 – taking cash holdings to $186m at the end of the financial year.
“It is an awesome result,” Wilson Asset Management lead portfolio manager Oscar Oberg said of the new figures released by Myer.
“Myer is on a pathway towards $100m in net profit, and we will see the balance sheet at the half-year results, but they could have $200m-plus in cash on a market capitalisation of around $730m.
“It looks very attractive still. The share price has had a great run, there is no doubt about that, but it was underpriced and most retailers are trading between 10 or 12 times price to earnings and this is on multiples of 7 on our calculations.” WAM is a shareholder.
Myer’s largest shareholder, billionaire retailer Solomon Lew, will be one of the major beneficiaries of the improving the department store’s earnings.
Late last year, Mr Lew scored a victory in his five-year campaign to get a candidate on to the Myer board after shareholders elected ex-Grace Brothers boss Terrence McCartney. Mr McCartney is also a director Mr Lew’s Premier Investments. Shares in Premier Investments also rose on Tuesday in the wake of the Myer trading update, closing up 97c at $27.60. The value of Premier Investments’ 22.87 per cent stake in Myer has risen by $41m since January.
Country Road Group, the fashion retailer owned by South Africa’s Woolworths Holdings, said it would return its brands to Myer after a five-year absence. It came after Johannesburg-listed Woolworths sold Myer’s main department store rival, David Jones, to Anchorage Capital in late 2022.
Country Road brands – which include Mimco, Trenery, Politix and Witchery – will remain in David Jones, although they will be limited to a smaller space.
Investment banks say they expect a slowdown in consumer spending will not come as early as previously forecast. Instead, according to UBS, consumers were bullish in the last three months of 2022, and shoppers expect spending growth to remain strong over 12 months.
Macquarie brokers, however, said they expect a slowdown following a bumper couple of years and strong Christmas spending.
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