More stores to close as Myer profit tumbles 80 per cent

Myer says it will close three of its stores. Picture: Wayne Taylor
Myer says it will close three of its stores. Picture: Wayne Taylor

Department store chain Myer says it will close more stores and expects another difficult year ahead after its profit tumbled 80 per cent due to writedowns on the value of some of its fashion brands.

However, in good news for Illawarra shoppers, the Shellharbour store isn’t among those slated for closure. 

Myer Wollongong closed in October last year, leaving Shellharbour as the Illawarra’s only Myer store.

The chain on Thursday said comparable sales fell 0.2 per cent for the 12 months to the end of July, while total sales, which includes the impact of three store closures, fell 1.4 per cent.

The company's net profit slumped from $60.6 million in 2016 to $11.9 million - the weakest result since the retailer's sharemarket float in 2009 - marred by writedowns of its investment in the local arm of Topshop, which went into administration in May, and its fashion brand sass & bide.

Sass & bide's performance had been "below expectations", with sales down $10.9 million from 2016, and Myer said it was writing down the carrying value of the brand by $38.8 million. At the same time, Myer's $6.8 million stake in Topshop was obliterated.

"The financial result isn't where we want it to be," chief executive Richard Umbers said after announcing the result.

Excluding the writedowns and costs associated with its turnaround plan, profit was $67.9 million, down from $69.3 million and in the middle of the company's guidance given in July of between $66 million and $70 million.

The result beat consensus forecasts and investors marked Myer's shares up as much as 4.8 per cent in early trade.

Myer said in May it would beat its 2016 result but later revised down its forecast.

"We are obviously disappointed to have not reached our target of exceeding last year's [net profit]... and that progress against our metrics that matter is slower than we anticipated," Mr Umbers said.

"However, Myer has become a leaner, more productive and efficient retailer, better placed to compete in a rapidly changing environment."

"The financial result isn't where we want it to be," chief executive Richard Umbers said. Picture: Paul Jeffers

"The financial result isn't where we want it to be," chief executive Richard Umbers said. Picture: Paul Jeffers

Citi retail analyst Bryan Raymond said it was a "reasonable quality" result, in line with the market's relatively low expectations. 

"The result was characterised by slower sales growth, but prudent cost management stabilised profitability," he said.

Myer said it would not renew leases at it stores in Colonnades in Adelaide, Belconnen in Canberra, and Hornsby in northern Sydney.

Sales in the first six weeks of the new financial year were "below expectations" and Myer said it expected "continuing changes to both consumer behaviour and the broader competitive environment" in the year ahead.

Myer did not provide guidance for 2017-18, but Mr Umbers said management "hoped to do better" than market consensus forecasts of a $66 million net profit. 

Myer is two years into its five-year "New Myer" turnaround plan to spend $600 million improving service, productivity, its online platform and product offering. 

Mr Umbers said New Myer had helped it "withstand the challenging retail trading conditions characterised by heightened competition, subdued consumer sentiment and discount fatigue".

But some believe the plan could be revised on a strategy day to take place in November. 

Myer has been falling behind some of the strategy's key targets, with average sales growth of 0.1 per cent a year coming in short of its 3 per cent target between 2016 and 2020, and sales per square metre increasing 3.7 per cent, a long shot from its targeted 20 per cent improvement by 2020.

The New Myer strategy aimed to see earnings grow faster than sales, whereas the opposite has happened. 

Myer's profit margin fell 58 basis points to 38.12 per cent, which it said was due to handing over more space to concession stores. 

Myer shares lost some of their early gains and were up 1 cent at 73¢ by midday. The stock has fallen 47 per cent since January, following its earnings downgrades.  

Veteran retailer Solomon Lew snapped up 10 per cent of the Myer share register in March, raising speculation he could launch a full takeover bid if Myer shares fell far enough.