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Should you be looking to buy Myer shares?

Andrew Main
Wednesday, September 20, 2017

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By Andrew Main
 
Some people are, because the price has held steady around the 70 cent mark despite a grim profit result last week and news this week that CEO Richard Umbers’ salary dropped by almost half a million dollars in the year just ended.
 
Let’s assume that investors aren’t that ghoulish that they hop on board when they see a CEO’s salary go down, in this case from $1.9 million to $1.43 million.
 
So there must be another reason, and it is hard to fathom.
 
Last week the retailer turned in its worst result since it was floated on the sharemarket at $4.10 a share in 2009. The result pushed the stock to an all time low of 68.8 cents on Monday.
 
There’s always the dividend story. Analysts at Citi, the most bullish of a very un-bullish bunch of brokers, had hoped in advance of the result to see a final dividend of 3 cents a share to take the total divided for last year to 6 cents, but the announced number was 2 cents.
 
That puts the dividend back to where it was last year, at 5 cents.
 
That’s an annual yield of just over 7% but in the words of the old television series, it’s a case of “never mind the quality, feel the width”.
 
As Telstra shareholders can tell you, don’t hold a stock for its dividends when the other major metrics seem to be heading south.
 
One cruel statistic about Myer is that in revenue and earnings terms, it’s back where it started post listing. Its first reported full year profit in 2010 was $67.1 million on sales of $3.32 billion, with last week’s equivalent underlying profit being $67.9 million on sales of $3.2 billion.
 
(And last week’s result then had to throw in $56 million in write downs due to problems with fashion labels Myer owns, such as the local arm of Topshop, which went into administration in May, and its fashion brand sass & bide.)
 
But let’s not twist the knife. Let’s just wheel out a list of circumstances that will influence capital growth.
 
First, there’s the old Amazon bogey but it’s probably unfair to compare a tactile experience-type department store with an online provider.
 
It would be fairer to look at the likes of Zara, the Spanish owned women’s clothing store that has a very high pedestrian throughput. That’s because Zara’s very nimble. Not only does the chain enjoy extra lead time on seasonal trends because we’re in the other hemisphere, but it’s extremely sharp at knocking out close copies of clothes getting noticed in the media.
 
Even though Zara’s based in Spain, it can order new lines from countries like Vietnam and Bangladesh that would take less time to be shipped to Australia than they would to get to Europe.
 
It’s been in Australia since 2011 and has around 20 stores.
 
Japanese group Uniqlo turned up in early 2014, muscling solidly into the market for basic women’s (and men’s) clothes, while Swedish giant H&M arrived in the same year by opening up in Melbourne’s old GPO building.
 
My fashion spies tell me that in terms of bargains, H&M is generally cheapest, followed by Uniqlo, followed by Zara.
 
Every one of which is munching happily away on what used to be Myer’s lunch.
 
And that’s before we talk about arch rival David Jones, now controlled by the financially more powerful Woolworths group of South Africa.
 
I understand David Jones has been poaching some of the up-and-coming labels that Myer had been nurturing, signing contracts offering those labels at least twice the exposure, in terms of store numbers. It might not be that exciting to be featured in the DJs store in Wellington in New Zealand, but Myer has no equivalent.
 
David Jones has 43 stores against Myer’s 63, so the latter’s far from beaten on that score, but Myer has just announced the closure of three stores (thus generating interest from the likes of Uniqlo) and eight of Myer’s stores will include space called Myer Clearance.
 
The three to go are Colonnades in South Australia, Belconnen and Hornsby.
 
Umbers has made it clear he’s no fan of running permanent sales events in the major stores but one floor of the Roselands store in Bankstown has been given over to Myer Clearance.
 
That’s reported by the trade to be a bit of early retaliation on Amazon, and it’s certainly logical, but it doesn’t shout from the rooftops that Myer is moving upmarket.
 
In summary, Myer’s in a classic retail jam where margins are getting skinnier, and competition in what had once been a leisurely field is now getting pretty damn hot.
 
Umbers has only been in the job since March of 2015 so you can’t blame him, particularly as he apologised so beautifully last week for dishing up numbers that were short of the analysts’ expectations.
 
“I have to tell you I’m disappointed with this,’’ he told The Australian’s Eli Greenblat after revealing last week’s profit of $67.9 million, down 1.9% from the previous year.
 
When an English captain of industry tells you he’s disappointed, that’s a bit like a judge saying he’s disappointed when the accused has jumped out of the dock, legged it down the street and hasn’t been seen since.
 
In summary, there are too many negative retailing trends and hungry new competitors out there for anyone to put a “Buy” on the stock with any confidence.

Published: Wednesday, September 20, 2017


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