Has struggling department store operator Myer Holdings Ltd (ASX: MYR) found a way to breakout of its decline?
That's the $221 million bet management is asking investors to front as it undertakes a turnaround strategy to create a leaner and meaner "New Myer" that focuses on an energised range of new products and a better shopping experience.
Change doesn't come cheap and shareholders are being asked to participate in a two-for-five accelerated non-renounceable entitlement offer that's priced at 94 cents a new share.
Myer is appealing to the bargain hunter in us as the new shares are sold at a large 22.3% discount to yesterday's closing price of $1.21.
The good news for Myer is that the $200 million plus proceeds from the capital raising is fully underwritten and will be used to fund part of the $600 million it needs over the next five years to develop the New Myer.
The strategy better work as the strategy and capital raising were announced at the same time Myer reported a 21.3% decline in full-year underlying net profit to $77.5 million and cancelled its final dividend payment.
However, the earnings result and turnaround plan may be just enough to win Myer's new chief executive Richard Umbers some much needed precious time.
Myer's bottom line was nearly 5% above consensus forecast, while its 1.7% increase in revenue to $3.2 billion was in-line with expectations.
Sales growth was underpinned by a 1.1% increase in comparable store sales (sales from stores that have been opened for more than a year) and this important sales growth metric is actually picking up pace to 1.3% in the second half of 2014-15.
Sure, it's a slow pick up but at least it shows things may be stabilising for the embattled retailer that has seen a five-year decline in its share price from nearly $4.
Here's what you need to know about Myer's planned turnaround:
- Myer will introduce TOPSHOP TOPMAN to its shelves from November this year. The brand is one of the hottest UK fashion labels;
- The deal is likely to be exclusive to Myer as the department store is taking a 25% equity stake in TOPSHOP TOPMAN's Australian franchisee, Austradia;
- It aims to deliver an improved in-store shopping experience though improved service, targeted customer engagement and effective use of digital and its loyalty card Myer One;
- Its online shopping experience will also be enhanced with an easy-to-use website that allows customers to pick up in-store or have their shopping delivered;
- Myer will potentially close 20% of its store footprint to cut cost;
- This will aid it in its goal to increase sales per square metre by more than 20% by 2020;
- It is targeting annual sales growth of more than 3% from 2016 to 2020 and is looking to increase its earnings before interest, tax, depreciation and amortisation (EBITDA) by more than sales growth from 2017 onwards
- Myer expects 2015-16 net profit to range between $64 million and $72 million.
These are ambitious goals but I think it could work. The fact that other retailers in the US have managed to reinvent themselves though similar strategies gives me some confidence that Myer's goals are achievable.
There's plenty of upside if the high-risk high-return turnaround pays off and I think shareholders with a tolerance for volatility should take up their entitlements.
Myer is still not for the faint hearted but at least there's now a tiny ray of light at the end of its long dark tunnel.
Shares in Myer are in a trading halt and will resume trade on Thursday.
