Following the Trump administration's decision to levy tariffs on Chinese goods overnight, the Australian share market has followed Wall Street lower and seen a sharp sell-off. This has seen a number of stocks, in particular those operating in Australia's retail sector fall to new 52-week lows as the market fallout from some underwhelming earnings reports continues.
New lows
One such company is cleaning products retailer Godfreys Group Ltd (ASX: GFY). The stock is trading at 26 cents at the time of writing and is down 68% over the last year. The company continues to struggle in the current retail landscape after delivering another poor earnings result for the half year ended 29 December 2017.
Revenues during the period declined by 8.9% to $84.2 million with comparable like for like sales down 6.2%. Margins also fell 250 basis points to 1.8%, which resulted in underlying earnings before interest, tax, depreciation and amortisation dropping 43.3% to $3.6 million.
The company reported a net loss after tax of $58.6 million after posting a non-cash impairment of intangibles and other assets of $75.2 million. Godfreys has abandoned its dividend and will embark on a turnaround strategy in an attempt to reduce net debt, which stands at $16.2 million and is higher than the company's current market capitalisation of $10.6 million.
Another struggling retailer that continues to make new lows is department store Myer Holdings Ltd (ASX: MYR), which is down 8.9% at the time of writing to 36 cents, bringing the loss over the last year to 66%. Myer has continued to sink after releasing its half yearly earnings report for the period ended 27 January on Wednesday. The company saw total sales for the period decline by 3.6% to $1,719.7 million with sales lower by 3.0% on a comparable store basis.
Myer's operating gross profit margin also fell 73 basis points to 37.53% that resulted in underlying net profit after tax decreasing by 36.1% to $40.1 million. A pre-tax non-cash impairment charge against Myer's goodwill and brand name of $515.3 million was the catalyst for its statutory net loss blowing out to $476.2 million. The company's board also decided against paying out a dividend. According to UBS, Myer is also at risk of breaching its much talked about debt covenants during the 2019 financial year.
Foolish takeaway
Godfreys and Myer are two well known Australian retail brands that were sold to private equity and have subsequently disappointed upon relisting on the Australian market. Both companies continue to struggle in a challenging retail environment with consumers battling weak wages growth, rising utility bills and fierce competition from online competitors gaining market share from traditional retailers. Given the headwinds these traditional retailers are facing, investors should consider looking elsewhere towards companies with superior growth prospects to deploy their capital.
