Myer downgrades profit as sales fall and warns of carbon tax impact

Myer’s third-quarter sales fell 2.1%, prompting the department store chain to cut its forecast for full-year net profit.

Sales for the 13 weeks to April 28 were $651.1 million, down 0.9% compared to last year and down 2.1% on a like-for-like basis.

The retailer said trading over the third-quarter was mixed, with a significant deterioration in April, reflecting a very challenging trading environment and subdued consumer sentiment.

Myer said it now anticipate 2012 net profits after tax to be no worse than 15% below 2011, at $162.7 million.

Its women’s youth, womenswear and menswear departments were the strongest performers during the quarter.

The best performing states of Western Australia, South Australia and Queensland were offset by the performance of both Victoria and New South Wales.

Myer chief executive officer, Bernie Brookes, told SmartCompany the result was “solid” considering the “very difficult” trading environment in April, which continued in the first few weeks of the fourth-quarter.

“While there may be a delay in any positive impacts on discretionary spend, the recent rate cut by the Reserve Bank, as well as an improving employment rate and the upcoming cessation of the flood levy, are timely as we head into the fourth-quarter and the important mid-year stocktake sale in June,” Brookes says.

“However, the fallout in equity markets and the ongoing turmoil in Europe continue to influence consumer sentiment.”

Myer’s online sales grew at over 200% compared to last year and Brookes says Myer is continuing an “elaborate rollout” of its omnichannel approach by increasing stock keeping units to 70,000 over the next few months and linking the Myer One program to the retailer’s website.

“The next part will be a much easier experience to transact. At the moment you have to move through a few different screens to buy something – there will be star ratings on products and there will be much better photography,” says Brookes.

“Online has arrived at a faster pace than I think anyone in Australia realised.”

The bulk of the revamp will be made between August and October, with the last phase in February 2013. Brookes says the result will be “a full blown website as good as anything else in the market.”

Myer’s website currently accounts for 1% of its sales but the retailer is aiming for 10% in the future.

“We are comfortable in saying it can be 10% of our volume, which runs to $300m,” says Brookes.

Brookes says Myer had no plans to cut staff and staffing levels were particularly important in the face of increased internet competition.

“For as long as I am in control, we are going to invest in increased wages. Investing $25m has given a sizeable improvement in customer compliments in comparison to customer complaints,” says Brookes.

Brookes says Myer was expecting the carbon tax would cost it between $4-$5 million on a cost base of $1 billion.

“There are two parts: one is the reality of whether it will impact the hip pocket and the reality; and the other is the perception,” says Brookes.

“We are expecting an indirect impost of $4-$5 million with the introduction of the carbon levy, that is specifically in electricity prices but also trucking costs.

“We won’t pay a carbon tax, but we will indirectly pay, and this will have an impact on future profitability.

“The carbon tax is not good for us because it is going to stop people putting their hands in their pockets.”

Ben Le Brun, market analyst at optionsXpress, said Myer’s third-quarter sales results were largely in line with expectations, although they were coming off a very low base and sales were still shrinking, not growing.

“Recent RBA rate cuts do not seem to be helping the ailing retail sector with consumers more inclined to pay down household debt than go out and spend,” Le Brun said.

“Looking at the situation in Europe and the effect it has had on financial market in the past couple of weeks, there could be even more pain for old school retailers like Myer coming up.”

Myer shares fell 6% following the announcement this morning.