Investors have brushed aside another weak quarterly sales update from Myer Holdings Ltd (ASX: MYR) even as the embattled department store operator takes another step closer to breaching its debt covenant.
It's a day of defiance as the share price of Myer firmed 0.5 cents to 38 cents at the opening bell as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) inched up 0.2% despite the big drop on Wall Street last night.
Investors may be feeling that the share price of Myer has been punished enough given its 60% crash over the past year as they cheered signs that the retailer's online sales strategy is paying off.
While management reported a 2.7% drop in total sales to $635.3 million for the 13 weeks to 28 April 2018, online sales surged 49.4% to $35.9 million. Growth in online sales is picking up a bit of steam as year-to-date stands at 49%.
It's a relief to see that online shopping isn't losing momentum even as shoppers continued to shun its stores with comparable store sales, a measure of sales growth at physical stores opened for a year or more, dropping 3.1%.
I think it's still too early to be popping the champagne as the stock isn't at a point that I would be comfortable buying.
The unusually warm start to winter has dragged on its performance and management is warning that this could impact on profit in the fourth quarter.
This sounds like another profit warning may be on the cards, although the more recent drop in temperature could help reverse its weakening sales performance.
Shareholders will be keeping their fingers tightly crossed as Myer is getting uncomfortably close to breaching its debt covenant and the surge in online sales is unlikely to save the struggling retailer.
Myer could follow the path of Dick Smith (remember that disaster?) where value of its online presence is worth more than the physical store network.
At least the new chief executive will be at the helm soon although Myer will stop reporting quarterly sales figures from FY19. This means shareholders will spend more time in the dark over the turnaround under its new boss.
I can understand why that's useful for Myer but I am not sure if the information vacuum will do much for confidence.
Retail is facing some very challenging times, just ask industry leaders like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN), but there is still value to be found in the sector with the likes of Super Retail Group Ltd (ASX: SUL) and Premier Investments Limited (ASX: PMV) attracting "buy" recommendations from most brokers covering these stocks.
The experts at the Motley Fool have also uncovered another group of stocks that are well placed to outperform the market.
Follow the free link below to find out what these stocks are and why they should be on your radar this year.
