Myer issues profit warning amid retail slump

Myer’s boss fears shoppers are “discounted out”, after a lacklustre stocktake sale contributed to a profit warning.

Excitement at the start of a Myer stocktake sale, but is the tradition losing its pulling power.

The boss of Australia’s largest department store, Myer, believes shoppers are “discounted out’’ thanks to a market awash with aggressive sales and promotions, and concedes the tradition of annual stocktake sales may no longer be luring customers.

CEO Richard Umbers was speaking as Myer warned profit for the 2017 fiscal year could be lower than previously expected, and flagged a $45.6m hit from the Topshop and sass & bide businesses.

The profit warning sent Myer shares to a record low and the unwanted tag of the worst-performing top 200 stock in the year to date.

The downgrade comes after the Myer stocktake sale, which kicked off in June and has been a cornerstone of the retailer’s events calendar for decades, failed to inspire shoppers.

Mr Umbers’ admission the traditional Myer stocktake sale might now be obsolete in driving sales will come as a shock to other retailers, which are also currently deep into their own end-of-financial year sales, and which rely on the event to boost profits heading into Christmas.

Mr Umbers told The Australian that sales since June had started to weaken, forcing the profit update along with a $6.8 million writedown of its Topshop investment and $38.8 million impairment charge to its sass & bide clothing label.

“Right back to January we knew that trading conditions were very tough indeed, but we believed at the time we had the levers to be able to manage that,’’ Mr Umbers said.

“And right up until the end of June we were still confident that we expected we would still deliver on the guidance that was out there, but as we got near to the end of the financial year of course the volatility that exists in the retail market become more critical.’’

Mr Umbers said the stocktake sale had failed to deliver the sales boost Myer was hoping for and suggested such annual sales had lost their power, with consumers constantly swimming in discounts.

“What I do think is relevant, that I think is the increasing discount environment that consumers are really ‘discounted out’, in that they have been in a market generally that has been on sale for a long time now, that really the power is coming out of the stocktake sale as being a viable vehicle.

“Plus of course I don’t think it’s the future for the premium end of the department store market.

“Sure, there is a tactical role for a short and well-orchestrated promotional sales period, but as a device for the long term of the development of sales and customer loyalty, discounting is not really where it is at.

Myer CEO Richard Umbers

“The power of discount sales to drive sales a the top end of premium department store market, the power of that is waning in the context of a market place, which is highly discount-driven.’’

Earlier, Myer (MYR) said it now expected net profit in the 2017 fiscal year to be between $66 million and $70 million), before implementation costs and significant items. The company previously expected net profit to be above $69.3 million before implementation costs.

In early trade, Myer shares hit a record low of 73.5 cents before recovering slightly to be eight per cent down at 75c at 10.44am (AEST).

Myer shares have fallen almost 50 per cent since August last year, wiping more than $600 million off its market capitalisation and making it the worst-performing top 200 stock in the year so far.

Myer has been struggling to grow sales amid increased competition from e-commerce sites as well as general concerns about Australian consumer spending.

The company launched a strategy called New Myer in recent years to turn around the business, which included reallocating in-store space to higher-performing categories as well as improving the digital shopping experience.

Myer also announced it would be writing down the $6.8 million full carrying value of the company’s 20 per cent stake in Austradia, the Australian franchisee of Topshop Topman, which appointed administrators in May. Myer said it was unable to secure a deal with UK-based brand owner Arcadia Group to continue Topshop concessions in Myer.

Myer also said it would take a $38.8 million impairment charge on women’s designer-clothes brand sass & bide.

Daniel Bracken and CEO Richard Umbers.

The company announced that Daniel Bracken, chief merchandise and customer officer and deputy CEO, will be leaving the company.

In May, Myer reported that its total sales fell 3.3 per cent in the fiscal third quarter, which the company said reflected challenging trading conditions and inclement weather. The fall ended a run of 13 consecutive quarters of same-store sales growth.

Myer’s gloomy outlook comes after department store rival David Jones last week announced its first fall in like-for-like store sales since it was bought by South Africa’s Woolworths Holdings in 2014.

With Dow Jones Newswires