Myer had a ‘schizophrenic attitude’, share class action trial told

Myer’s board was “lulled into a false sense of security” over its ability to meet consensus forecasts, a court has been told.

Shoppers at the Melbourne Myer store. Picture: Aaron Francis

Department store Myer had a “schizophrenic attitude” over the responsibility of its key executives to admit to the market that the retailer could miss its promised profit forecasts for 2015 with the board “lulled into a false sense of security” over its ability to meet consensus forecasts, a court was told yesterday.

On the second day of a share class action trial against Myer, led by class action specialist Mark Elliott, Norman O’Bryan QC went through up until now highly confidential internal emails and minutes of board meetings for Myer held through 2014 and 2015 as the company began to realise it wouldn’t hit its stated profit targets.

The emails and board minutes also disclose the early approaches to eject the Myer chief executive Bernie Brookes, despite only being reappointed in the role 12 months earlier, and replace him with Richard Umbers – which indeed later happened.

Mr O’Bryan QC, acting for the plaintiffs in the class action lawsuit, TPT Patrol, the trustee of lead plaintiffs the Amies Superannuation Fund, had already told the court on Wednesday that Mr Brookes had announced to investors, analysts and the media in September 2014 he expected profit growth in 2015. This was despite trading down 15 per cent in the first quarter.

A later profit warning would see Myer’s shares hit the skids and later trigger the shareholder class-action lawsuit that started in the Federal Court this week.

In his second day of addressing the court, Mr O’Bryan detailed emails from then Myer chief financial officer Mark Ashby who was becoming concerned about worsening trading with emails and documents circulated among key executives and the board over strains on the budget.

On September 15, Mr Ashby sent an email to the finance department saying after 2 months of trading in 2014 it was time to “reforecast the business against the budget” and that one executive had identified a “potential gap in the online business.”

Mr O’Bryan QC said Mr Ashby was already in the middle of September staring at the face of a loss in the first quarter and that “he knew, we submit, he knew they were not going to get out this hole with anything like increased profits for fiscal 2015.’’

Mr O’Bryan QC said there was a “schizophrenic attitude within Myer” where a number of the executives plainly understood the market had a net profit forecast and had one since September of 2014 because it was announced by Mr Brookes, and therefore any discrepancy had to be disclosed.

He said the Myer board was “lulled into a false sense of security for some reason” considering no forecast had been given by Myer for fiscal 2015 but could instead rely on the Bloomberg consensus that unless they strayed more than 5 per cent away from did not have to make a forecast.

Mr O’Bryan QC said through “various feats of engineering” or “arithmetic” Mr Ashby could get Myer back to its target of a profit of $90 million, which gave the board comfort. But soon the “air went out of the balloon” and Myer clearly was on course to miss the earnings target.

The case is continuing.