Sales Slip, But Profits Are Up – What’s Next for Myer?

Power Retail By Power Retail | 05 Sep 2019

Myer has announced its FY19 results. What does the future of Myer look like now?

Myer has announced its yearly results for FY19. Its EBITDA (Earnings before interest, tax, depreciation and amortisation) is up 7.4 per cent, leaving it at $160.1 million. However, its total sales are down 3.5 per cent to $1,991.8 million, with comparable-store sales down 1.3 per cent.

“This result demonstrates our focus on profitable sales, a disciplined management of costs and cash, as well as deleveraging the business,” explained John King, Myer’s CEO and Managing Director. “In the first year of the Customer First Plan, we have progressed a number of strategic initiatives, but recognise there is much more to be done to transform this business in the interests of customers and shareholders.”

“We have made progress working with landlords, through a portfolio partnership approach, to reduce our footprint and refurbish stores to transform the customer experience, whilst simultaneously delivering material cost savings. We announced with Scentre Group a plan to refurbish our store at Belconnen to create an enhanced shopping experience across a reduced floor space. Similarly, we will hand back a floor and refurbish our Cairns store from January 2020. We have also agreed to exit level four of Emporium in Melbourne from May 2020,” he continued.

Unlike brick-and-mortar stores, Myer’s digital channels grew 21.9 per cent to $292.1 million. However, these digital sales didn’t include the first quarter, which ‘represented a period of subdued growth due to the transition to the new website’.

According to the ASX announcement this morning, depreciation increased by $7.6 million to $101.6 million, which reflects the investment of its online business, new merchandise planning scheme, three store refurbishments and ‘ new technology associated with the back of house efficiencies in stores’.

What’s Next for Myer?

Despite falling in-store sales, Myer Holdings plans to introduce a few initiatives to increase its reach for customers, such as improving its intake of well-known and established international brands at Myer stores. Known as ‘Only at Myer’ brands, including Calvin Klein, Polo Ralph Lauren and Tommy Hilfiger have seen success and will continue to be driven as part of Myer’s growth strategy.

“Vero Moda is a good example of this strategy. The brand was launched successfully in Myer in August 2018, with customers responding positively to the competitive price points. As a result of the successful launch, the brand was extended to a further ten stores in March 2019 and subsequently to all stores,” a spokesperson for the department store explained.

Aside from introducing more well-known international brands to its collection, Myer is also planning to ‘enhance Myer,com.au’ – with hopes to close the gap between online sales and in-store experiences.

“Both traffic to the site and conversion improved and overall fulfilment costs per order were down 13.5 per cent during the period. However, we did encounter some issues during peak trading which lead to an increase in costs during that time,” the spokesperson said.

Myer plans to close the fourth floor of its Emporium store in Melbourne’s CBD, shut its Logan store in January this year, with plans to close another store in Hornsby by January 2020.

At a Glance

The Myer FY19 results show:

Improvements delivered in FY2019:
– Improved OGP margin
– Focus on simplification
– NPAT* +2.2% despite lower sales, increased depreciation and interest
– Operating cash flow up $8 million to $138 million, net debt reduced by
$69 million

FY2020:
– Disruption with brand exits, offset by several new and exclusive brands
– Disruption with floor relays post space handbacks
– Continued investment in MEBs to improve range
– Investment in online business to further enhance customer experience
– Continued higher interest and depreciation
– Cost savings expected with further space reductions as well as efficiencies in
supply chain, fulfilment and the Support Office
– Continued disciplined approach to cash and deleverage

What Does This Mean?

As long as Myer continues to push its digital stores forward and focusses on its niche, it seems that the department store will stick around a bit longer. These findings show that retail may be going through a rough patch, but e-commerce is lifting the overall numbers for the store.

Another challenge that Myer must face is that of customer experience. It’s not just about price or how fast a website will load. If a customer leaves the department store dissatisfied, they’ll be far less likely to head back later.

“Our focus, since we launched our Customer First Plan, has been on profitable sales, a disciplined management of costs and cash, and deleveraging the business; and nothing has changed from this,” Mr King concluded in the statement. “Although we have made good progress on executing the Customer First Plan, we know there is much more to be done, and we will continue to deliver against the Plan in the best interests of customers and shareholders.”

“We anticipate the challenging macro environment and subdued consumer sentiment to continue during FY2020. However, we have identified a number of opportunities to improve productivity and to continue to reduce costs, through both cost savings and efficiencies, across our supply chain as well as other noncustomer facing activities,” he said.

Like this story? Sign-up for the free Pulse Weekly Newsletter for more essential online retail content.