Shares in Myer Holdings Ltd (ASX: MYR) slumped to a two-month low this morning after the department store posted a worse-than-expected interim result.
It looks like Myer's former chief executive Bernie Brooks exited the business at the right time as he left the new head Richard Umbers to break the bad news to shareholders.
The stock tumbled over 12% at the open before clawing back some of the loss to trade 7% lower at $1.42.
While sales inched up 1.5% to $1.8 billion, net profit crashed 23.1% to $62.2 million for the six months to January 24, 2015.
Revenue was below management's expectations but what is more concerning is the margin squeeze, which will leave brokers scrambling to downgrade their forecasts for Myer.
Gross margin is down 24 basis points (0.24%) to 40.54% and the company is expecting costs to grow by around $15 million in the current half. The falling Australian dollar sure isn't helping either.
Management said full year net profit before one-off costs will come in between $75 million and $80 million compared with a consensus forecast that's closer to $90 million.
Umbers is undertaking a strategic review of the business and analysts believe this will include the closure of underperforming stores and a potential capital raising.
However, the stock is likely to remain on the back foot until Umbers can show tangible evidence of a turnaround. There will be little appetite to give Myer the benefit of the doubt given its track record.
Myer will pay an interim dividend of 7 cents a share compared with last year's 9 cent distribution. The stock has shed close to 50% of its value over the past 12 months.
There are better quality retail stocks to buy for those looking for exposure to the sector. RCG Corporation Limited (ASX: RCG) and Premier Investments Ltd (ASX: PMV) are two that come to mind.
