Why are Myer Shares Falling?

What happened to the Myer share price?

Myer Holdings Limited [ASX:MYR] is an Australian department store. Myer has 67 stores across Australia. Its range includes men’s, women’s and children’s fashion apparel, homewares, cosmetics, furniture and electrical goods.

Shares of Myer were 1.25% lower at the time of writing.

Why did Myer shares do this?

Myer shares have been steadily rising since mid-February, when South African-owned department store David Jones announced that first-half sales were up 11% over a year earlier.

Myer shares have rallied from $1.00 per share to around $1.25 two weeks ago. It appears investors think David Jones’ increased turnover will show up in Myer’s first-half results. Once the results were announced on 17 March, the share price fell back to around $1.11.

Unfortunately for hopeful shareholders, the good news at David Jones didn’t flow through to Myer’s results.

Net profit dropped by 4%, to $59.7million, compared to $62.2 million for the previous period. The first-half figure was below the guidance of $66–72 million. The interim dividend was 2 cents per share, significantly down from 7 cents per share for first-half 2015.

Those in charge at Myer claim the drop in net profits is the result of heavy investment in new brands and nationwide store upgrades.

There is some good news for investors though. Total sales rose by 1.8%, to $1.7 billion, while comparable store sales grew by 3.3%. With foot traffic increasing, this means that customers are returning to Myer.

Myer is six months into its massive $600 million five-year turnaround strategy. The Myer bounce-back plan so far has included bumping up staff numbers. Of the 3,000 Christmas and Boxing Day casual staff that were hired, roughly three quarters were kept on.

Myer — like Officeworks, Target, SurfStich and Kathmandu — now has an eBay ‘shopfront’ in a bid to attract more overseas customers. The chief digital and data officer, Mark Cripsey, says it’s about taking the product to where the customer is, rather than waiting for the customer to come to them.

Not only that, Myer is dumping private labels in favour of ‘wanted brands’. This is the opposite strategy to David Jones. David Jones is aiming to have higher margin private label brands account for 20% of its product range.

What now for Myer Ltd?

When Myer debuted, the initial public offering was for $4.10, giving it a market cap of $2.33 billion. Myer is now worth $933 million.

 The big question is; will this turnaround strategy for Myer work?

I reckon it’s too early to tell.

However, with new blood being brought in last year, I believe the transition to a better company is on its way. It could be another 12 months before it shows up in the share price though.

Shae Russell,
Money Morning

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia