Myer’s profit slides; John King slashes inventory to lift cash flow

John King says he will use the disruptions to global fashion and apparel supply chain to strip Myer’s bloated inventory.

Myer says the current supply issues are a chance to cut inventory Picture: Paul Jeffers

Myer chief executive John King will use the disruptions to global fashion and apparel supply chains sparked by the coronavirus to strip the department store of its bloated inventory and bolster cash flow, as he pushes ahead with the painful restructure of the retailer that has seen another slump in profits.

Warning that clothing shipments for Myer’s portfolio of private label fashion could be delayed by as much as six weeks, with shipping container traffic in March likely to run at 40 per cent of normal capacity, Mr King said it provided an opportunity to improve Myer’s fashion offer.

This was particularly the case for his womenswear category, the beating heart and profit driver of any department store, which underperformed in the first half.

That underperformance, along with almost $22m in impairment and restructuring charges, saw Myer’s interim profit dive by one-third. Its shares slid on the news, closing down 4.4 per cent, or 1.5c, at 33c each — just above all-time lows.

But despite another disappointing profit result, another year of no dividends to shareholders and the worst trading conditions in decades, Mr King was upbeat about the improvements that could be made and the underlying profitability of the retail chain.

“I think the line I would point everybody to, in terms of looking at the health of this business, is the EBIT (earnings before interest and tax) and the EBITDA (earnings before interest, tax, depreciation and amortisation) lines. And our EBIT is up 1.2 per cent with a number of retailers talking about earnings down 50 per cent, or more than that, so that is the underlying strength of our business,’’ Mr King told The Australian.

He said it was a “wait and watch” situation regarding the coronavirus’s impact on consumer spending and foot traffic in the stores, but that Myer had plenty of activation strategies to inspire visits and purchases at its department stores, as well as business efficiency plans.

“We constantly look at costs, we still think we have an 18-month run of efficiency improvements and cost reductions we can use to mitigate any weakness in the top line.

“We feel it is solid set of results despite what is going on, and we are not going to blame what is going on, we are just going to focus on what we can fix, what we can do to keep our ship on track.’’

Myer posted a 36.5 per cent slump in its interim net profit to $24.4m, driven by post-tax impairments and charges of $13.4m. Its net profit before impairments fell 4 per cent to $39.6m, while pre-tax earnings lifted 1.2 per cent to $64.5m.

At a sales level, revenue for the 26 weeks to January 25 was down 3.8 per cent to $1.61bn. Comparable store sales for the half were better by 0.4 per cent, excluding Apple and Country Road which exited the retailer and took with them around $65m. Online sales for Myer were up 25.2 per cent to $168.2m and now represent 10.5 per cent of total group sales.

Appointed two years ago, Mr King is a retail veteran from Britain and is midway through a five-year restructure plan that has seen him rip up strategies of previous CEOs. It includes shutting down clearance floors set up by former boss Richard Umbers and exiting 25,000sq m of floorspace, with another 100,000sq m targeted for removal. He is also building up the portfolio of fashion brands, with 135 brands launched since August. Mr King said his Myer exclusive brands made up 17 per cent of its sales mix, with 65 per cent of that private label fashion sourced from China.

Mr King said the slowdown of shipments from China would provide an opportunity for Myer to slash away at its bloated inventory.

“In terms of what we are seeing currently all our factories by tomorrow will be back up and running, 85 per cent last week were back up and running, and 80 per cent of fabric mills we understand are up and running,’’ he said.

“We will probably get around 40 per cent of our normal traffic of containers through March, with catch-up through April and May. We reckon there is a about a four to six-week delay … the flip side of that is actually a great opportunity to destock and refocus on how much inventory you actually really need.”, so it has given our buying teams and merchandise teams some food for thought how we get merchandise in, I see it as a cash flow opportunity in the short term.’’