Myer records its worst half-year result through a $476m loss

It could take just one more poor winter sales season to push Myer into administration as the retailer sails ultra close to breaching its debt covenants.

The struggling department store chain yesterday revealed a $476.2 million loss for the first half of 2018, which is the worst financial result in its history.

The result, which had been flagged in a trading update last month, was blamed on major cost writedowns made to the company’s intangible assets.

Myer’s goodwill and brand value was written down by $515.3m but analysts have questioned whether that level should have been higher, given the precarious trading performance of the business.

Myer’s market capitalisation is now just $340.8m after its stock lost another 3.5 per cent to close at 42c — again the lowest level ever.

The writedowns, which totalled about $530m, took the value of the company’s net asset to $580m, which is just above the debt covenants of $500m.

Some analysts suggest the covenants could have been at risk of being breached had Myer been more aggressive on the writedowns of its goodwill value.

The company’s fixed charge coverage ratio now sits at 1.65 times, just above the banks’ requirements of 1.5 times.

Myer flagged it is in talks with its lenders, reportedly led by ANZ, to refinance its debt, which is not due to expire until August next year.

Myer refuses to reveal the composition of its lending syndicate but DataRoom understands that several international banks, especially the Japanese, are part of the financing group.

It is thought the international banks would be more willing to push Myer into administration compared with local lenders, which could take a reputation hit for dealing harshly with a major brand like Myer.

Analysts believe Myer could breach its debt covenants if earnings fall by another 15 per cent in the next six months, which could occur if its winter sales are disappointing.

Myer chairman Garry Hounsell is being paid $83,333 a month to run the retailer after he sacked chief executive Richard Umbers last month.

The size of Mr Hounsell’s monthly salary has surprised analysts and observers. It amounts to nearly $1m a year.

Myer had refused DataRoom’s requests to publish the remuneration levels of the executive chairman after he took over the job on February 14, when Mr Umbers was fired .

The hunt for a new chief executive is reportedly under way but analysts believe it could be months before a replacement is found.