Myer profit hit as Olivia Wirth vows to return group as ‘retail powerhouse’
Myer executive chair Olivia Wirth says work is under way to return the 125-year-old grand old dame of Australian retail back to its title as a ‘retail powerhouse’.
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Myer executive chair Olivia Wirth believes she has the strategies in place to finally deliver sustainable profit growth for the struggling department store owner, despite worsening trading conditions in the sector.
She has also had to contend with a misfiring national distribution centre that is not fully functional and has robbed Myer of millions of dollars in lost profit in the first half.
Nonetheless, she pledged the work is now in progress to return the 125-year-old Myer to its place as a “retail powerhouse” in Australia, a title it hasn’t enjoyed for decades as its sales flatlined, earnings sank and previous CEOs made similar promises but never were able to deliver.
“I joined in June last year and we have just been very much focused on how we build the Myer Group as it is now into a retail powerhouse, and we believe we are in the middle of quite a significant yet ambitious turnaround and transformation,” Ms Wirth told The Australian after Myer posted a near 40 per cent slide in its half-year net profit to $30.4m and flat sales, up just 0.1 per cent to $1.83bn.
“There is genuine strength in Myer as a brand (and the) loyalty program, which is strong and can be stronger.
“We have spent a significant amount of time understanding what our customer needs are, understanding what they like, what they don’t like, and so we are in the process of reimaging what that apparel offer will be like, including our private labels.
“There are strengths across the board,” she said pointing out improvements in the in-store experience, e-commerce, its strong presence in the beauty space and recent executive hires for her leadership team.
The interim result for the half year to January 25 was flagged to the market in early January and did not include the fashion brands bought from Solomon Lew’s Premier Investments – Portmans, Just Jeans, Dotti, Jay Jays and Jacqui E – with that deal completed on January 26.
Ms Wirth’s pledge to return the grande dame of Australian retail to its former glory will happen in worsening trading conditions as shown by the trading update.
Myer Group sales for the first five weeks of the second half were down 2.6 per cent. Although adjusting for non-recurring events such as the timing of key promotions, the Taylor Swift concerts in Australia and the leap year, comparable sales for the first five weeks would have been flat. The market was initially bearish on the result, sending Myer shares down almost 10 per cent before closing at 75c, down 1 per cent.
Ms Wirth will announce some of her new strategic plans at an investor day on May 28 but her promise to drag Myer from decades of mediocrity comes amid tougher trading conditions persisting into March and ongoing problems with Myer’s distribution centre.
The company on Wednesday said profit before accounting for impairments and restructure charges was down nearly 195 per cent to $42.4m. Hurting the bottom line was operating problems at its national distribution centre in Victoria, which cost around $12m in lost earnings.
This $12m hole included $7m in lost sales and $3m to run two distribution centres instead of just the new site. There were also costs associated with using staff to physically pick and replenish online orders in stores.
Ms Wirth couldn’t commit to when the distribution centre would be fixed and run at full capacity. “We haven’t provided a deadline on that, as indicated we have workarounds in place ... we are fulfilling from stores and that is not ideal and we are just working through when we will have the site operational.”
Ms Wirth said her new growth plans were “well under way” and she expected they would start delivering results in the second half as the retailer also brought together a new leadership team and integrated the purchase of its portfolio of apparel brands from billionaire Mr Lew’s Premier Investments. These benefits included the refinancing of its debt facility, which would save $3m in the second half and ring up annual savings of $11m.
Ms Wirth, formerly loyalty boss at Qantas, said Myer’s loyalty program engagement in the first half was its strongest since inception, with 4.6 million active customers, up 6 per cent, and 79.1 per cent of total sales generated by the Myer One program.
Myer’s same store sales for the first half rose 0.8 per cent; group online sales were up 4.8 per cent to $409m. “We have been focused on resetting the business and positioning the Myer Group as a retail powerhouse,” Ms Wirth said.
In the first half, margins fell to 35.8 per cent from 36.4 per cent, impacted by a shift in sales to lower margin categories and items, the problems caused by its distribution centre and higher costs for its Myer One program. However, there was a notable improvement in shrinkage expense, also known as store theft, which fell 12.9 per cent over the half.
Myer declared a 2.5c per share dividend upon the completion of its apparel brands deal with Mr Lew; no interim dividend was declared.
Originally published as Myer profit hit as Olivia Wirth vows to return group as ‘retail powerhouse’
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