With $2.7 billion in leases looming, Myer has reportedly ruled out voluntary administration. The retailer has $19.9 million in net debt and gearing of about 3 percent, which means it is moving closer to breached fixed charges cover covenants in banking agreements after a 24 percent fall in earnings in the January half.
For its first half — the six months to January 27 — Myer suffered a net loss of $476.2 million, compared with a $62.8 million profit for the same period a year earlier, making it the biggest loss in its 118-year history.
According to The Australian Financial Review, Myer has said that voluntary administration was not under consideration, while insolvency experts have said that VA was a ‘blunt instrument’ and would create further problems for the beleaguered retailer.
Market sources however had suggested that Myer may take the same path as retailers such as Oroton Group, placing the company into VA to void lease agreements while it renegotiated rents with landlords. At the time of the Oroton collapse, administrator Vaughan Strawbridge from Deloitte Restructuring Services said that: “The flexibility of the voluntary administration process enhances the ability to further restructure Oroton Group in a manner which makes it possible to achieve the best possible outcome in these circumstances.”
Despite its woes, Myer has said that it continues to be solvent, posting a net profit after tax of $40.1 million before restructuring costs and asset impairments in the six months ended January, free cash flow of $109 million, net debt of $19.9 million and available liquidity of $400 million.
The Myer Board remains engaged looking for a new Managing Director and CEO. “As Executive Chairman, it is my role to ensure the business delivers on these customer centric measures and profitability, while the process of recruiting a new CEO takes place,” said Garry Hounsell.
Hounsell reiterated the need to manage costs including an emphasis on reducing overall occupancy costs, whilst maintaining investments in customer service and the online business. Myer has said that active discussions continue with Myer’s landlords, on a whole portfolio basis, relating to total occupancy costs, space productivity, lease tenure and capital investments. Mr Hounsell also said that management are focused on a number of procurement benefits.