Myer shares rally 18pc despite profit warning as shoppers pull back on spending

The retailer warned of slowing profits, but shares spiked 18 per cent as its performance wasn’t as bad as some investors feared.

Department store owner Myer has warned of inflationary pressures through the economy and greater reliance on promotions and discounts by other retailers to shift stock, which is expected to hit its interim profit - but investors took a ‘glass half full’ approach to the update to take relief at still good earnings to send its share price rocketing 18 per cent.

In a trading update released on Tuesday, Myer said it expects net profit of between $49m and $53m for the six months to January 27, which includes the unfavourable impacts of store closures, and the impact of inflationary cost pressures.

The forecast is well down on the interim profit of $65m Myer posted in 2023, which was at the time its highest interim profit since 2014 built on record high first-half sales and bolstered by a strengthened balance sheet flush with cash.

Shares in Myer rallied 18 per cent on the release of a trading update which although showed a fall in sales and profits for the December half was not as bad as some investors had feared given the poor trading conditions for many retailers currently.

On Tuesday the stock later closed up 9.5c at 76c.

Myer has warned of inflationary pressures through the economy and greater reliance on promotions and discounts by other retailers to shift stock. Picture: ChrisPavlich/The Australian

The update comes as the economy and trading environment has toughened for discretionary retailers, with a range of retailers such as jeweller Michael Hill and fashion and apparel stable Country Road Group warning of slowing sales driven by a consumer and household under growing financial stress.

On Tuesday, Myer, whose largest shareholder is retail billionaire Solomon Lew, said it expected sales for the half to be down 3 per cent to $1.829bn but 13.8 per cent higher than pre-Covid levels. Online sales for the December half are expected to be $390.1m, an increase of 2 per cent and representing 21.3 per cent of total sales.

Total group inventory is expected to be lower than the same time last year, reflecting the continuing focus on newness and controlling intake to match trading conditions.

Outgoing Myer chief executive John King said there was a heavier reliance on promotions in the market, which was hitting profitability.

“To match our best first half sales result on record, on a comparable sales basis, is an encouraging result given the current economic environment,” he said.

“Like many retailers, we have had to contend with inflationary pressures and greater promotional cadence, which has had an impact on profits.

“We expect the consumer to remain cautious in the second half of fiscal 2024 but believe we remain well positioned with the strength of our leading loyalty program, our national distribution centre starting to scale and the continued rollout of successful brand extensions and new additions.”

Myer said it anticipates releasing its first-half results during March, following the completion of financial close procedures, board approval and completion of the half year review by the company’s auditors.

The company said its board has been undertaking a comprehensive search for a new CEO and would update the market on progress in due course.

Wilson Asset Management lead portfolio manager Oscar Oberg said the Myer trading update reflected the strength of the retailer despite the worsening economic landscape.

“For Myer to get flat comparable sales growth is a great achievement, they have clearly had a better Christmas that has actually improved in the second quarter.

“So we were very surprised how strong it was. Obviously this management team has done tremendous job, but I think all of us would have thought that fiscal 2024 would be a very very tough year and if this is the low point in earnings ... $50m in profit and let’s say they do $10m of profit in the second half so let’s call it $60m in total profit - that is a pretty decent business if the low point of earnings is $60m and the high point is $100m that they did last year.”

WAM is a shareholder in Myer.

He said Myer was further strengthened by the fact it was carrying no debt.