Myer issues profit warning after sales slide

Myer has unveiled a profit warning, blaming a slump in sales on a limp economy and the Christmas calendar.

Myer chairman Garry Hounsell with CEO Richard Umbers at the AGM. Pic: Stuart McEvoy

Myer chief executive Richard Umbers believes the department store chain’s sales would be even worse than the five per cent slump in the first two weeks of December if it hadn’t launched its “New Myer” strategy.

But ultimately the retailer had fallen victim to poor economic conditions, anaemic consumer confidence and Christmas being on a Monday for the first time in 10 years.

Myer (MYR) today confirmed what most observers and analysts had suspected for some time, that this Christmas is likely be a poor one for major retailers as shoppers stay away from stores or spend much less when they do visit.

Myer’s share price dived over 7 per cent to 67.25 cents by 11am (AEDT) following what is its second profit warning this year, and evidence that ahead of its most important trading period, sales have worsened.

Myer said despite investing heavily in marketing and traffic-driving initiatives, total sales to the end of November were down 2.3 per cent and down 1.8 per cent on a comparable store sales basis.

It warned that sales during the first two weeks in December had weakened further and were down 5 per cent on the previous corresponding period.

“A significant proportion of annual NPAT is generated during the second quarter. Myer expects 1H 2018 NPAT (pre implementation costs and individually significant items) to be materially below the previous corresponding period.

“Given the recent sales volatility and considering the magnitude of sales expected in the coming weeks, Myer does not have a reasonable basis to provide a specific profit range for the half or full year at this time.”

Mr Umbers later told The Australian that shoppers might be withholding spending for a splurge on the weekend just before Christmas, pushing back spending and robbing Myer of sales in the last two weeks.

“I am out at the stores right now and what I am seeing is motivated teams, I am seeing well-presented stores and I think we are very well prepared for Christmas, but ultimately we need customers to come in and that’s a traffic issue,’’ Mr Umbers said.

He also said volatile weather conditions could also be playing a role in fashion sales, but the driving force of its sour earnings guidance was the difficult trading conditions generated by a limp economy.

“Really what has triggered this (profit warning) is that we have hit December and we’ve had two weeks that are significantly different from the trend, and given that volatility and the magnitude of the sales going through the Christmas period we felt it was important to inform the market of that,’’ Mr Umbers said.

“But remember it is two weeks, and I think there are some other factors to be borne in mind as well.”

These factors included economic conditions and the configuration of the Christmas calendar.

“First thing is the configuration of days this year is quite different from last year, so year-on-year comparisons can be problematic, for many shoppers there is an extra weekend of shopping here.’’

He said for the first time since 2006 Christmas Day was on a Monday, giving an extra weekend of last-minute shopping.

“So for many people I suspect that they might be leaving their shopping later.

“Also I do think we have got subdued economic conditions, which is playing out in retail generally and that is obviously an economic input, but then there is also a consumer behaviour input that is seeing a lot of people shopping online and you can see that in our own results.’’

Mr Umbers said he didn’t think the recent launch of Amazon in Australia was a factor in Myer’s downgrade.

Mr Umbers said he was sticking to his “New Myer” strategy, launched in late 2015, and that without that sales for Myer would have been a lot worse.

“I have no doubt that if we hadn’t been investing in New Myer, there is no question the situation would be worse.”

Earlier, Mr Umbers said in a statement: “Trading during the past two weeks has been significantly below our expectations and the year to date run rate, and while there is an additional weekend of pre-Christmas trading this month, we do not know what the sales impact of that will be.

“There has been continued strong performance in our online business with sales up 62 per cent in the first four months despite cycling a particularly strong previous corresponding period in the lead up to Christmas 2016.

“While this strong growth has not been sufficient to offset the subdued trading in some stores, we take confidence from this performance as indicating that we are investing in the right areas.”

Myer, which has spent most of the last three months fighting off an aggressive and destabilising campaign by its biggest shareholder, Solomon Lew’s Premier Investments, has now handed him more ammunition to attack the department store owner over its poor retail performance and slumping sales.

Mr Lew, who tried to eject three directors from the Myer board at its AGM last month, is expected to pounce very soon, possibly calling an EGM to try to turf out the board and install at least three of his own hand-picked directors.

Solomon Lew with Premier Investments CEO Mark McInnes. Pic: Stuart McEvoy

Mr Lew waged a personal war against Myer chairman Garry Hounsell in the lead up to the Myer AGM, saying he lacked retail experience and that the Myer board also lacked the retail nous to turn around Myer in the midst of awful retail conditions.

Today, a Premier Investments spokesperson said: “At Premier’s AGM on 1 December 2017, the chairman, Mr Solomon Lew, warned Myer’s board of directors: ‘Summer is coming … The numbers won’t lie.’ Clearly there is worse to come.”

Mr Hounsell said today the retailer was moving urgently to improve performance.

“While the last two weeks of trading have been disappointing, I am in no doubt that the commitments made at the recent Myer Strategy Day to further focus on omni-channel and productivity are the correct priorities,” he said.

“As I said at the AGM, I am an impatient person and I am driving the executive team to unlock value more quickly.

“During the next 12 weeks, I will be continuing my incoming chairman’s review of all aspects of the business including MYER one, omni-channel, merchandise, marketing, customer service, property and a cost review to commence immediately.

“I will update shareholders on any additional steps that are required to drive performance progressively during this period.”

Mr Lew’s Premier Investments is Myer’s biggest shareholder with a 10.8 per cent stake.