Myer’s profit warning strengthens Lew’s hand

Myer chairman Garry Hounsell. Picture: Stuart McEvoy

The prospect of Premier Investments and its chairman Solomon Lew trying to roll Myer’s board next year is strengthening, after the struggling department store revealed a pre-Christmas profit warning.

The retailer’s shares lost 10 per cent yesterday after it said total sales to the end of last month were down by 2.3 per cent. It also revealed sales in the first two weeks of this month were off by 5 per cent.

The stock closed yesterday at 65.5c, which gives it a market capitalisation of just $537 million.

Myer shares have lost 52.5 per cent in value so far this year, and the company is in danger of slipping out of the ASX200.

Premier is Myer’s largest shareholder. It holds 10.9 per cent and yesterday was digesting the profit warning.

Premier’s proxy holder at Myer’s annual meeting three weeks ago, solicitor Jeremy Leibler, asked then chairman Paul McClintock about the likelihood of a fresh earnings downgrade within the next two months.

McClintock said Myer’s fortunes were reliant on customers and that the trading environment was increasingly volatile. The answers did little to appease cranky shareholders.

It seems increasingly likely that Premier is going to push for an extraordinary general meeting next year to force change on Myer’s board.

The existing directors were re-elected at the November 24 meeting, but there was a dissenting vote of more than 30 per cent.

New chairman Garry Hounsell met Mr Lew before taking on the job and asked for potential solutions to help resurrect the department store.

Lew proposed former Myer Grace Bros chief Terry McCartney, former banker Tim Antonie and Abacus Property Group head of strategy Steven Sewell be added to the board. However, Hounsell failed to contact Lew in response, which set off the public stoush between the pair.

The expectation had been that Lew would push for an EGM next April and propose the trio of directors be elected to the board.

However, Myer’s trading has become so poor it is expected Premier could now campaign for the entire board to be sacked.

For the change to happen, Premier would have to be backed by major shareholders like Investors Mutual, which holds 9.85 per cent, Dimensional, Vanguard, Prudential and former Myer CEO Bernie Brookes.

The thinking is that appointing Premier’s three suggested directors to Myer’s board would not be enough to help turn around the retailer.

Instead, Premier could push for a new board to scrap the New Myer strategy and help rescue the company.

There is one theory that Myer could approach Premier after its results in March effectively “cap in hand” and try to work on a conciliatory strategy. However, the prospect of that would be slim given the public animosity.

Analysts are now speculating just how bad Myer’s first half results will be, given the company refuses to release exact guidance or even a forecast range for that period or the full year.

UBS last night raised the question whether Myer could start to breach its debt covenants as the bank cut its earnings per share forecasts by 18 to 19 per cent. UBS has a sell rating on Myer and said its ability to grow earnings in the short term was limited.