Myer profit warning a gift for Solomon Lew

Hostilities between Myer and its biggest shareholder, Solomon Lew, are set to flare up in the new year.

This Christmas is likely to be a bad one for major retailers. Picture: Sarah Matray.

Hostilities between Myer and its biggest shareholder, Solomon Lew, are set to flare up in the new year after the department store operator issued its second profit warning just two weeks out from Christmas, sending its share price crashing to a record low.

The admission from Myer that poor sales heading into December had accelerated to spark a 5 per cent sales slump for the past two weeks will be powerful ammunition for Mr Lew, who has fought a pitched battle with the Myer board for months and has argued its strategy to resurrect Myer’s earnings is failing.

Mr Lew, whose Premier Investments has a 10.8 per cent stake in Myer, is likely to pursue an extraordinary general meeting in the new year to turf out directors from the Myer board and replace them with his hand-picked executives, who he believes can save Myer from its trading woes.

With Myer issuing its second profit warning since July, Mr Lew might now attract a host of large institutional shareholders that did not support his bid to block the election of three Myer directors at the retailer’s annual meeting in November.

Mr Lew delivered an almost 30 per cent vote against the election of three directors, including Myer chairman Garry Hounsell. Armed with yet another downgrade and a plummeting share price, he could win the vote at an EGM in the new year.

Referring to the poor sales ­trajectory in the first two weeks of December, a spokeswoman for Premier Investments said: “Clearly there is worse to come.”

Myer has sounded an ominous warning for shareholders and the wider retail market, with the department store the first to point to a disappointing Christmas as consumers stay away from the shops.

Last month, fashion retailer Oroton collapsed into voluntary administration and a number of smaller fashion chains and labels, such as Live Clothing and Lover, are also collapsing.

If Christmas is indeed a poor one for retailers, there will be more business failures come January.

65.5¢ Myer closed down 7¢ q

Myer chief executive Richard Umbers yesterday stuck to the positives of his “New Myer” strategy, believing the department store’s sales would be even worse than the 5 per cent slump in ­December if it had not launched the initiative.

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

“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 added.

Myer yesterday confirmed what most observers and analysts had suspected for some time: that this Christmas is likely to be a bad one for major retailers as shoppers stay away from stores or spend much less when they do visit.

It warned that sales to the end of November were down 2.3 per cent, but that had now worsened to a 5 per cent fall.

“A significant proportion of annual net profit is generated during the second quarter,” Myer said. “Myer expects first-half 2018 net profit (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.”

Myer’s shares sank more than 12 per cent to a record low of 63.5c, before closing down 7c at 65.5c.

Mr Umbers said a number of factors were driving the sales ­decline, including economic conditions and the configuration of the Christmas calendar.

He said that, 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,” he said. “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.’’

Daniel Mueller, portfolio manager at Vertium Asset Management, said the Myer downgrade was “very concerning” as it was so close to Christmas.

“Historically, this is a key trading period where retailers make a large percentage of their profits for the year. Management usually waits until after this period to report any weakness, which is why we sometimes see downgrades in January in years of weak Christmas trading,” Mr Mueller said.

“I can’t recall a retailer downgrading before the Christmas trading period.

“So the timing of the downgrade is quite astounding and clearly management’s hands were tied as December sales deteriorated on already weak numbers so far in fiscal 2018.’’