By Carrie LaFrenz
Hefty discounting at Myer’s fashion brands and lower spending across its department stores are weighing on profits, the Solomon Lew-backed retailer has warned, with sales down almost 3 per cent to $3.27 billion in the last financial year.
The warning to investors, ahead of the release of Myer’s financial results next month, comes amid a broader sluggishness among retailers.
Mosaic Brands, which operates Millers, Katies and Noni B, this week brought in Deloitte to help refinance and restructure the business after a painful period where sales have slumped. South Africa’s Woolworths Holding has engaged Boston Consulting Group to advise on how to cut millions of dollars from its Country Road business.
On Thursday, Myer said sales had also been affected by the closure of its Brisbane City and Frankston stores, as well as restraint among customers who are paying higher mortgages. The Reserve Bank of Australia warned earlier this week that it was unlikely to cut interest rates before the end of the year, as it fights higher inflation.
Myer told investors that it expected net profits to be between $50 million and $54 million – down from $71.1 million last year – for the 12 months to July 27.
Shares in the company, which counts billionaire businessman Mr Lew’s Premier Investments as its largest shareholder, fell 6.55 per cent to 78¢ on Thursday.
Myer is grappling with the underperformance of sass & bide, Marcs and David Lawrence, three brands it owns. Prices across those three businesses have been discounted to shift stock that has accumulated.
“The underperformance of these brands is expected to represent approximately half of the year-on-year decline in [net profit],” the retailer said in a statement.
Those three brands had been on up for sale until the arrival of Myer’s new executive chairwoman, Olivia Wirth. Ms Wirth has instead decided to keep those businesses as part of a strategy to increase the number of Myer’s own brands in its department stores and its popular online platform.
Push to merge
“In the current challenging trading conditions, we are acutely focused on optimising operational performance including tightly managing costs, inventory, and margins and fully leveraging our Myer One loyalty program,” Ms Wirth said.
“We are also positioning the business for growth and are well progressed in a comprehensive strategic review of the business. We look forward to discussing the strategic review at an investor presentation in October.”
As part of that new strategy is a proposal to merge Myer with the women’s and youth apparel brands owned by Premier Investments.
If the deal proceeds, Mr Lew would become Myer’s largest investor in a personal capacity. Premier Investments’ Apparel Brands division – which spans Just Jeans, Jay Jays, Dotti, Portmans and Jacqui E – is worth around $1.2 billion without any debt, according to E&P Capital estimates.
Myer has engaged Barrenjoey, while Premier Investments is working with UBS.
The enlarged group will have about $4 billion in annual sales and more than $200 million in earnings. The deal was likely to delay the spin-off of Mr Lew’s larger Smiggle and Peter Alexander brands, which was being explored by the billionaire as part of a strategic review of Premier Investments.
“The rationale [for the deal] stands up … Myer gross margins will increase, and there are significant synergies that can create a pathway for the business to potentially be in the ASX 200,” Wilson Asset Management’s Oscar Oberg, who first bought shares when former chief executive John King started at the department store in 2018, said last month.
Myer said sales – when store closures were accounted for – rose 0.4 per cent in the year to July 27. They were 0.8 per cent higher in the second half. Online sales were up 2 per cent to $704 million and now make up 21.6 per cent of Myer’s total revenue.
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