Bloomberg News

Myer First-Half Profit Drops 18% as Spending Stalls

March 15, 2012

Myer Holdings Ltd. (MYR), Australia’s largest department store chain, posted an 18 percent drop in first-half profit as sales fell on stalling consumer spending.

Net income sank to A$87.3 million ($91 million), or 14.9 Australian cents a share, in the six months to Jan. 28 from A$106.8 million, or 18.2 cents, a year earlier, Melbourne-based Myer said today in a statement. That missed the A$94.2 million median estimate of five analysts surveyed by Bloomberg News.

Myer said annual sales may drop for a second straight year, or be “at best flat,” affirming its forecast for profit to decline by as much as 10 percent. Australia’s A$250 billion retail sector is facing slowing spending and weak consumer confidence.

“There’s no signs that we’re seeing any reversal of fortunes from the consumer sentiment point of view,” Chief Executive Officer Bernie Brookes said in a conference call after the earnings announcement.

A measure of Australian consumer sentiment showed a decline for the seventh time in nine months yesterday, squeezing retailers already facing downward pressure on sale prices as the strength of the Australian dollar cuts the cost of imported goods.

Myer shares fell 3.4 percent to A$2.29 at close in Sydney, the biggest drop since March 6. The shares have declined 26 percent in the past 12 months, compared with a 5.5 percent fall in the benchmark S&P/ASX 200 index.

Struggling to Grow

“Myer continues to struggle to grow sales at a time when costs are rising,” Silvia Spadea, an analyst at Merrill Lynch & Co., wrote in a March 13 note to clients, adding that the company’s current profit margins may not be sustainable.

Sales for the first half fell 1.7 percent to A$1.7 billion, with revenue from outlets open at least a year dropping 3 percent, Myer said. General business costs rose 3.2 percent to A$515 million due to increased spending on wages, rent and utilities, and the acquisition of Sass & Bide, a womenswear retailer.

Australian households are saving money at the highest rate in two decades, with the household savings ratio in the December quarter standing at 9 percent, nearly double the U.S. equivalent. The higher ratio means a smaller proportion of income is being spent on consumer goods, particularly the more expensive discretionary items such as clothes and electronics sold by department stores.

‘Challenging Conditions’

Second-ranked chain David Jones Ltd. (DJS) last month said it expects “current challenging retail conditions” to continue for the rest of the year.

Myer’s sales fell 3.5 percent in the first quarter and 0.4 percent in the most recent period.

“We have seen improvement in trading between the first and second quarters with a continuation of the second quarter trend” into the current half, Brookes said in the statement.

Myer plans to shut a store in the national capital of Canberra and has closed another one in Melbourne, Brookes said.

The company, which operates 67 stores, cut its target for store expansion. It now aims to have 75 outlets in the next few years, compared with an earlier target of 80, according to Brookes.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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