Analysis of Myer Indicates it’s at “Death’s Door”

April Davis By April Davis | 16 Nov 2018

The AFR has released a scathing review of Myer’s finances, claiming the more than 100-year-old retailer is “at death’s door”.

It’s no secret that Myer’s current position in Australia’s retail market is dire. With sales down 5.5 percent year-on-year and 8.9 percent against Q1 of fiscal 2017, the only shining light in the company’s recent performance is online, with e-commerce sales up 41 percent against the same period two years ago, but have since dropped by 5.2 percent when compared to 2017.

According to AFR Journalist, Joe Aston, Myer is in a dangerous position with Myer’s board required to update the market if it suspects it will fall short of underlying profit by between five and 10 percent.

Myer made the decision earlier in that year to cease providing quarterly revenue updating, much to the disgust of Premier Investment’s Solomon Lew, and this morning released an ASX announcement notifying the market of a temporary pause in trading.

“Trading in the securities of the entity will be temporarily paused pending a further announcement,” the ASX release said

Aston claims that “tracking below a first-half underlying profit of $36 million or less is instantly disclosable”, with Myer’s current underlying profit for 1H18 sitting at a precarious $40.1 million on revenue of $1.7 billion.

What does this mean? According to Aston, the outlook isn’t good.

“Let’s be charitable and assume the trajectory of Myer’s nosedive doesn’t steepen: at negative 5.5 per cent, it will get to January 31 with a full $92 million less cash in the till. Myer’s operating margin was 37.53 per cent for 1H18,” he wrote. “Assuming the same margin (charitable again), that represents a decline in underlying profit of $24.15 million, or a full 60 per cent below last year’s $40 million first-half profit. Call us conservative, but a disclosure threshold may have been reached here.”

In response to this analysis, Myer has released a statement saying it’s “aware of its continuous disclosure obligations and confirms it is in compliance with them”.

But can Myer really move the needle? Lew certainly doesn’t seem to think so, with his most recent note to Myer detailing seven reasons the “Myer board must go”.

At its 2017 AGM, Myer received a first strike, if it receives a second, the blow could be fatal for the company’s current board. With this year’s AGM less than two weeks away, Lew has been calling for the business to release its most recent financial results, so shareholders will have the full picture of Myer’s financial state, allowing them to make an informed decision regarding the embattled retailer’s future. According to Lew, the value of shareholder’s investments have decreased by 33 percent, with the company’s critic claiming Chairman, Garry Hounsell is largely to blame for Myer’s current position.

According to Lew, “Myer now refuses to release quarterly sales updates and won’t provide its first quarter FY19 sales and profit or loss numbers ahead of the upcoming AGM, despite providing this same information to its banks.”

“All these decisions have resulted in Myer’s share price falling by 33% (24 cents) since the 2017 AGM to just 48 cents (and to top it all off, with no dividends being paid). This represents the destruction of $200 million in shareholder value during this short period alone, and more than $2.1 billion since Myer’s ASX listing.”

Lew’s made his opinion of Myer’s board very clear since Premier became Myer’s biggest investor, but with Premier’s own brands being in direct competition with Myer, his allegations about the board have largely been seen as an attempt for him to further his own interests.

But according to Aston, the looming threat of a second remuneration strike and a spill motion could see Lew get his way after all.

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