‘New Myer’ marches on after 70 per cent profit plunge

MYER customers are being asked to put their faith in a $600 million plan to save the retailer, including a deal with Topshop — but can it deliver?

Myer customers have been asked to put their faith in the department store’s latest plan revive its fortunes, with a slew of new labels being rolled out this year. Picture: Tim Carrafa

MYER customers are being asked to put their faith in a $600 million plan to save the struggling retailer, as news breaks of its latest profit plunge.

Shortly after putting its hand out to shareholders for $221 million needed to help fund the five-year turnaround plan, the company took the unusual step of sending a note to customers.

Members of the Myer One rewards scheme received an email this afternoon signed by chief executive Richard Umbers, promising to “bring the love of shopping to life for you and future generations” with a strategy focused on female shoppers and high-profile brands.

The email said the company would deliver “a fresh interpretation of our brand, a re-energised and relevant range, improved service and in-store experiences”, complemented by a strong online shopping platform.

“This is just the beginning of our New Myer journey and I look forward to sharing our progress with you along the way,” Mr Umbers signed off.

The email also included a video:

With the company wrapping up a dismal year, announcing bottom-line profits had plummeted by 70 per cent, the pressure is on.

Hopes are hanging on a partnership with British label Topshop, set to be rolled out at more than 20 stores, to help revive the department store’s fortunes — with the investment described by Mr Umbers as “an international coup” for the business. But analysts were unsure of the strategy’s prospects of reversing the decline.

“It’s a good move, but the underlying business is suffering so much, to turn the ship is going to take them a while,” Morningstar analyst Farina Parsons said.

“They’re trying to encourage customers to take up the offer, because if you look at the history of Myer, they’ve never really delivered on what they have promised and it’s not the first time they have delivered a strategic review. They did it under Bernie Brooks as well, so I think the market is still sceptical about whether or not they can actually deliver on that.”

Acquiring a 25 per cent stake in Topshop was ‘an international coup’ for Myer. But will it save the department store?

Myer, which has already dumped 100 underperforming fashion brands and introduced new labels Seed, French Connection and Nine West, will acquire a 25 per cent stake in the Australian Topshop Topman franchisee and roll out concession stores starting with Myer Bondi Junction in November. The first Melbourne concession store will open in February next year.

The retailer today unveiled a $221 million share issue to help pay down debt and finance a $600 million, five-year investment, including the Topshop investment.

Mr Umbers, who became chief executive when Bernie Brookes stepped down in March, said the company anticipated a return of 11 to 15 per cent on its outlay and aimed to grow sales by 3 per cent a year to 2020.

Existing shareholders are entitled to buy two new securities for every five they own, with the new shares priced at 94 cents. That’s a big discount on Monday’s closing price of $1.21.

The benefits of the investment won’t be apparent in the 2015-16 results, with Myer forecasting net profit, excluding the cost of the overhaul, of between $64 million and $72 million.

Net profit excluding significant items for the financial year just finished was $77.5 million, 21.3 per cent down on 2013-14.

Myer chief executive Richard Umbers is under pressure to reverse the retailer’s decline.

Myer’s move follows a similar overhaul by major rival David Jones, which dumped 180 brands after a company-wide review of its own.

Sales at David Jones, which was bought by South Africa’s Woolworths for $2.1 billion in 2014, grew 10.7 per cent in the six months to June.

Myer’s sales rose just 1.1 per cent on a comparable stores basis to $3.196 billion for the 52 weeks to July 25.

Its overall net profit fell to $29.8 million from last year’s $98.5 million, partly due to a $24.5 million hit from costs associated with two store closures and stock clearance, as well as $11.8 million in restructuring costs and a voluntary redundancy program.

Mr Umbers said the company would outsource services such as logistics but had not yet decided whether it needed to close more stores.

“The decisions we have taken to deliver New Myer will lead to changes to both our store network and operations, resulting in a more productive and efficient footprint,” said Mr Umbers, who acknowledged the project “will take years”.

MYER IN THE MIRE

● Net profit down 69.7 per cent to $29.8 million

● Total sales up 1.7 per cent to $3.196 billion

● No final dividend, compared to 5.5 cents in 2013-14