Myer renegotiates debt as COVID hits earnings

Store closures, the fall in consumer confidence and less traffic in its stores have taken a toll.

In a trading update Myer said trading during the second half was severely impacted by COVID-19. Picture: Getty Images)

Myer has won some breathing room on its debt and covenants in the wake of COVID-19, signing a binding term sheet with its existing lenders to amend and extend its bank facility until August 2022.

However, it revealed its earnings have taken a hit from store closures, the fall in consumer confidence and less traffic in its stores and in key city locations - especially in Melbourne - as people stay in lockdown.

Myer said in a statement to the ASX its amended debt facility of $340m compares to the existing facility of $360m.

The reduced size in part reflects the company’s success in deleveraging the balance sheet during the past two years evidenced by reducing peak requirements, Myer said, with a peak debt level for 2019 of $220m (compared to $290m a year earlier), and an increase in net cash at the end of the first half 2020 by $65m to $103m when compared to fiscal 2019.

The lenders have agreed that no covenant testing will be required at the end of fiscal 2020, given the significant impact of COVID-19 on Myer’s operations during the second half of 2002.

Covenants for future periods will continue to be tested quarterly as per the previous facility but have been adjusted down and will range during the term of the facility.

Myer chief financial officer Nigel Chadwick securing this new facility with existing lenders is testament to the work undertaken during the past two years.

“It is particularly pleasing to have secured this extension to our facilities during such an unprecedented time of economic and social disruption in retail. We also wish to acknowledge the important and continuing support provided by the lending syndicate.”

In a trading update Myer said trading during the second half was severely impacted by COVID-19.

On March 29, Myer closed all 60 stores for the health and safety of team members and customers.

“At the same time, the difficult decision was made to stand down approximately 10,000 team members. Stores were progressively reopened from May 8, with the majority of stores reopening on May 27.

“As well as store closures for the majority of that two-month period, sales were further impacted by significant reductions in foot traffic, in particular in CBD locations, and more recently the metropolitan Melbourne region.

“Pleasingly, the strong growth in online sales continued throughout the second half, and this growth accelerated significantly during the period of store closures.”

As a result of disciplined cost control, support from the federal government via JobKeeper and other payment deferrals, as well as rent relief and deferrals, and despite the loss of revenue and earnings as a result of the store closures and reduced foot traffic, the company expects to report a small net cash positive position at the end of 2020. This compares to $39m in net debt at the end of 2019.