It seems that most of the investing world was disappointed by the results released by Myer Holdings Ltd (ASX: MYR) last week. Myer shares were sold down by over 5% on 20 March when the company reported an 8.1% fall in net profit on a 0.3% rise in revenue, with like-for-like sales rising 1.2%.
Impact to shareholders
Myer's shares ended the week down nearly 10%, while shares in rival and potential merger partner David Jones Limited (ASX: DJS) ended down nearly 6%. The Myer result was important because it confirmed the widely speculated theory that David Jones is leading Myer in turning around sales and earnings.
David Jones reported a 4.6% decline in net profit on revenues that increased by 3.8%, while like-for-like sales increased by 1.1%.
The result looks little different to Myer; but don't be deceived! David Jones' drop in net profit is primarily due to a previously flagged drop in financial services income, while it appears that Myer store sales are yet to bottom.
Merger opportunities
Consequently, shareholders now consider a merger to be less likely, because David Jones would be giving up ground in the proposed arrangement. The speculation since October has been the prime contributor to a 16% rise in David Jones' share price between October and mid-March. This would appear to be the reason for last week's share price capitulation.
Interesting management choices
Another side-plot of the Myer vs David Jones debate is the recent re-signing of Bernie Brooks as Myer CEO after he had previously planned to retire in 2014. Mr Brooks has a long and successful history in retail but has so far overseen a 35% decline in earnings before interest and tax in his four years in charge. Shareholders will be getting nervous if he fails to turn around sales quickly now that his pay has been increased by 39% to stay on.
So is Myer a buy?
I recently commented on whether I believed David Jones is a buy. I said that I couldn't find a compelling reason why I should buy it because of the challenges facing the bricks-and-mortar retail sector, and the lack of attention to the needs of younger males. Myer faces many of the same challenges, and while greater attention on internet sales will help, there needs to be a sharp reversal in earnings before the company becomes a good investment proposition.
