Shares in department store operator Myer Holdings Ltd (ASX: MYR) are treading water today after the group reported its financial results for the 26-week period ending January 28 2017.
Below is a summary of the results with comparisons to the previous corresponding period of the 26 weeks ended 23 January 2016.
- Total sales down 0.6% to $1.786 billion
- Overall sales increased 0.3% on a comparable store basis
- Q2 sales down 1.3% to $1.06 billion, down 0.5% on comparable store basis
- Online sales up 48%
- Net profit up 5.3% to $62.8 million
- Interim dividend of 3 cents per share
- Basic earnings per share of 7.6 cents
- EBITDA margin up 25 basis points to 8%
This is a respectable result from a company that has commonly had more than 15% of its issued stock shorted over the period by speculators betting the share price will fall on the back of weak sales.
The fact that total and same-store sales were up over the period (if only by a minimal amount) is a positive alongside the fact that the group delivered 5.3% profit growth.
However, it's the future that counts and Myer's chief executive Richard Umbers is pursuing a turnaround strategy in an attempt to clear up the wreckage left by previous CEO Bernie Brookes who badly underinvested in the business in a misguided attempt to support profit margins.
The result of the years of underinvestment in the department stores was a lack of customers, floor staff, and sales as the stores appeared outdated versus their retail rivals.
The new strategy of investment and focusing on popular concession brands appears to be working and supports savings in staff labour costs as they're often met by the concession operators.
Over the period sales in concessions grew by $76.5 million to $386.2 million, while sales in "Myer Exclusive Brands" slumped $39.4 million to $300.2 million.
The bad news was that the company flagged that sales in January and February were below expectations, although it still expects "EBITDA growth to exceed sales growth in FY 2017 and increased NPAT (pre and post implementation costs) over FY 2016." Others in the retail sector including leading shoe retailer RCG Corporation Ltd (ASX: RCG) and vacuum cleaning business Godfreys Group Ltd (ASX: GFY) also flagged weaker retail sales environments recently in moves that show Myer is not alone in its recent struggles.
Outlook
Selling for $1.11 Myer shares trade on just 11x analysts' estimates for earnings per share of 9.8 cents in FY 2017, with a trailing dividend yield of 4.5%. This looks cheap if you believe Myer can successfully execute its turnaround strategy.
However, given the rising levels of competition from the likes of Amazon.com and foreign fast-fashion retailers Myer might well be an old-fashioned value trap. Only time will tell, but I'm not a buyer of its shares.
