Macro Intelligence: misery to makeover, Myer's retail riddle

Article written by Juliette Saly (ausbiz)

Spotlight on Myer (ASX: MYR)

In this week’s edition of IG Macro Intelligence, we take a deep dive into Myer Holdings (ASX: MYR).

Myer’s misery

Retailer Myer had a challenging FY24, as cost-of-living pressures saw consumers hold back on discretionary spending. Full-year sales fell almost 3% to $3.2 billion, while net profit after tax was down 26% to $52.6 million.

Myer FY24 financial snapshot

Store closures and rising costs

The decline in sales was partly attributed to Myer's closure of its Brisbane, Frankston, and Werribee stores for all or part of the year, alongside challenging macroeconomic conditions. However, comparable store sales increased by 0.4% year on year.

Cost management and dividend cuts

Costs rose by 1.3% over the 12 months to $834.7 million; excluding the impact of delivery income reclassification, costs would have remained largely flat. This increase reflected Myer's efforts to mitigate rising costs, including those associated with store closures.

As a result of the profit decline, Myer cut its final dividend by 50% to 0.5 cents per share. Total fully franked dividends for FY24 came in at 3.5 cents per share, down 61% from FY23.

Shares in Myer slumped after the results were released to the market in mid-September. However, they are up around 40% year-to-date and over the past 12 months.

That’s more than double Accent Group’s (ASX: AX1) move in the same period.

Fellow retailers Premier Investments (ASX: PMV) and Harvey Norman (ASX: HVN) have risen between 16-34% year-to-date and over the past 12 months, respectively.

Myer Holdings daily chart

Strategic review and potential merger

Myer's executive chair, Olivia Wirth, has acknowledged that FY24 was a challenging year for the ASX-listed retailer.

"(The) result reflects the challenging macroeconomic environment for Australian retailers… We are laser-focused on improving our profitability, performance and shareholder returns.

We have commenced a comprehensive strategic review to increase Myer's profitability and drive sustainable earnings growth. Our objective is to identify opportunities to deliver a step-change in Myer's market position and generate strategic and financial benefits.”

Wirth and the board are now attempting to turn Myer’s miseries around and have confirmed that due diligence is currently in progress regarding a potential merger with the Apparel Brands division of Premier Investments.

Time to go shopping?

Myer also plans to intensify its investment in its struggling sass & bide, Marcs, and David Lawrence brands, which contributed to the 26% drop in profits. Wirth is planning to improve margins from Myer’s exclusive brands and foster greater customer loyalty.

Despite plunging 11% on the day Myer released its results to the ASX, shares appear to be in a long-term uptrend as confirmed by multiple indicators. ASX Tradewatch data show the 20 and 200-day moving averages of Myer shares are upward sloping, which are a signal the stock can continue rallying in both timeframes.

Myers stock performance and analyst recommendations

Mixed analyst recommendations

Few analysts cover the stock; however, the average recommendation on Myer shares according to Refinitiv data is a BUY. The target price is $0.68, suggesting an 18% drop from current trading levels.

Ord Minnett has a HOLD recommendation on Myer, noting:

• Discretionary retail stocks should improve due to talk of interest rate cuts and the Government’s Stage Three tax cuts.
• However, the broker advises caution in the near term due to a notable divergence amongst Myer’s categories, with cyclicals projected to be nearly flat while defensives are expected to increase by 4%.
• While there are some appealing opportunities for shareholders, the market might be expecting a stronger recovery than they are forecasting.

Ord Minnett has a price target of $0.75 for Myer.

Recent broker ratings for Myer

Morgans’ insights

Morgans has initiated coverage of Myer by including the company in its 'Keeping Stock' research series, which does not provide forecasts, targets, or ratings.

The broker notes:

• Myer's sales last year were the highest since 2005, driven by over 20% online penetration from its largest chain of premium and mid-range department stores in Australia
• Additionally, Morgans is impressed that Myer has resumed dividend payments and boasts over $200 million in net cash (excluding leases) on its balance sheet
• The MYER One loyalty program has 4.3 million active members, and Morgans suggests that new CEO Olivia Wirth will aim to replicate her previous success with the Qantas Frequent Flyer program.