Results: Myer’s Weak First Half Sees Dividend Cut

After a brief flurry of optimism that saw the shares rise yesterday in the wake of the expected fall in interim earnings, Myer shares closed the day down 9c or 3.3% at $2.28.

That was a more accurate reflection of the reception for the result, which included a more telling indicator, a cut in final dividend to 10c a share from the 10c paid for the first half of 2010-11.

Myer shares bounced to a day's high of $2.42 after the result was released on comments by the company that second quarter sales fell at a much slower rate than they did in the first quarter.

Some early online commentaries talked about 'green shoots' appearing in the result and management comments, but in reality they were hard to find and more to do with a reaction to the first up price spike.

Not helping was the confused versions of sales and earnings: there were at least three different sales figures and a similar number of profits.

This is how the sales appeared in yesterday's results statement:

1H sales down 1.7% to $1,704 million, down 3.0% on a comparable store sales basis.
Q2 sales down 0.4% to $1,023 million, down 1.7% on a comparable store sales basis representing an improving trend on Q1.
Excluding rationalised categories: total 1H sales down 0.4%, down 2.0 % on a comparable store sales basis; Q2 sales up 1.0%, down 0.7% on a comparable store sales basis.

And the trio of profits were:

Earnings before interest and tax (EBIT) down 15.1% to $142.9 million.
Earnings before interest, tax, depreciation, amortisation (EBITDA) down 10.0% to $182.9 million.
Net profit after tax (NPAT) (after non controlling interest) down 19.8% to $87.3 million, including.

So sales fell more sharply on a comparable (same store) basis except when the products the group is no longer selling (such as DVDs and TVs) are stripped out.

Earnings slid no matter the measure, and the cut to the dividend tells us that management is not all that confident of meeting management guidance for a profit fall over the full year of 10%.

The result is probably going to be matched or bettered (on the downside) by David Jones which is due to release its interim results next week.

Because, if the first half was down near 20%, the retailer will have to flog a lot more goods in the second half to claw back the yearly decline to only 10%.

How it can do that when the sales outlook is for flat growth (i.e. very little) is hard to see.

Myer obviously knows the problems ahead of it because it warned that unless the sales trend across its network of stores improves from current levels, the group will record total sales for the 2011-12 financial year below or at best flat compared with 2010-11.

That's down on previous guidance which called for modest sales growth.

The guidance reconfirmed will include the impact of one-off additional costs of $40 million for the 2012 financial year.

Myer CEO Bernie Brookes said the company had made good progress on delivering its strategic plan in the first half and that there continued to be a number of opportunities to further improve the business in what remains a challenging trading environment.

"Our EBIT result was solid given the current trading conditions and reflects the robust business model we have established," Mr Brookes said yesterday.

Mr Brookes said despite the challenging trading conditions there were opportunities to improve earnings including the continued strengthening of its online offering, benefits from better sourcing, improved store lease terms, capitalising more on its Myer One loyalty program and better customer service.

He said there was some signs of improvement in trading between the first and second quarters with a continuation of the second quarter trend into the second half of 2011-12.

"Our strong operating gross profit margin was driven by growth in MEBs (Myer exclusive brands), as well as progress in space optimisation, reducing markdowns and shrinkage, and improving product sourcing," Mr Brookes said.