By Joanne Tran
Myer’s share price could double and investors are underestimating the prospects that the department store could become a powerhouse as it transforms into a much larger retailer with a portfolio of brands.
That’s the view of analysts at Morgan Stanley, who told their clients this week that Myer’s share price could stage a turnaround and hit $1.10 if its new leadership, led by former Qantas Loyalty chief executive Olivia Wirth, could pull off their strategy.
The broker said shares could reach $1.70 in a best-case scenario, and if lower interest rates and tax cuts prompt shoppers to spend more.
The bullish outlook is a fillip for 124-year-old Myer, where shares have slid almost 5 per cent in six months, and comes as the company acquires a portfolio of brands owned by Solomon Lew’s Premier Investments. The purchase of casual wear chains Just Jeans and Jay Jays and women’s fashion retailers Jacqui E, Dotti and Portmans, will turn the company from a department store with 56 outlets into a business with 783 shops in Australia and New Zealand.
Wirth hopes to expand Myer’s popular loyalty program to the newly acquired chains, which have higher margins than the department stores. The company also hopes its scale will give it more power to negotiate with suppliers and sell more of its own brands across the network.
Myer is set to release its half-year results on March 19.
Morgan Stanley’s Chenny Wang wrote that Myer was in the early stages of its turnaround strategy to restore growth and while execution risks were “high”, there was a “pathway for its share price to double”.
Citing work with the investment bank’s property and consumer teams, Morgan Stanley brokers said there was plenty of opportunity to save money by moving the new brands into Myer stores. Across the five brands, there were 190 stores in the same shopping centres as a Myer store.
As part of its turnaround strategy, Myer in January acquired retail giant Premier Investments’ five apparel brands that range from those appealing to young adults in Jay Jays and Dotti to older women with Jacqui E. Those clothing chains also include Just Jeans and Portmans.
“Store rationalisation projects executed well can deliver great returns with limited sales leakage,” they wrote, pointing to a similar amalgamation at Kmart, the Wesfarmers-owned discount department store.
The new leadership team led by Wirth and Lew had “a proven track record of success”, they added. “Execution won’t be easy, but these key individuals reduce some risk. We also like Myer’s refreshed strategy including the focus on higher-margin, differentiated, exclusive and private label brands.”
Oscar Oberg, a portfolio manager at Wilson Asset Management, which has been a shareholder in the department store since 2018, said he was confident that the new management could turn the business around.
“Our view is that Myer under Olivia Wirth, who’s got excellent experience running loyalty programs, can get new and existing Myers customers, plus customers from Premier’s Apparel Brands, to increase penetration of Myer One, which is one of the highest-rated loyalty programs in the country and this can hopefully generate consistent top-line growth,” he said.
“If they execute their strategy, I actually think that the business can make close to $200 million in net profit in the next three to four years and I think it’ll be higher than that over the longer term.”
Myer shares last traded at 80¢, up 1¢ on Friday.
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