Question

Myer’s dark day as earnings down, share price slumps

MYER has suffered its worst single-day market rout since its inglorious return to the bourse five years ago, after revealing it has suffered yet another slump in earnings.

Shares in the struggling ­department store chain plunged 13 per cent yesterday, wiping $188 million off its market value and undoing two months worth of gains.

It came as chief executive Bernie Brookes declared the group’s net profit had fallen for the third year in succession and was down almost 40 per cent since 2011.

Mr Brookes said the retailer was focused on its own game despite a big shift in the competitive landscape as David Jones’ new owners marked out an aggressive growth plan.

But disappointed investors stampeded the exits nonetheless, delivering Myer its worst single-day market performance since it was floated in November 2009.

Mr Brookes defended Myer’s long-term strategy, saying investment in store refurbishments, its online offer and its private label brands had taken a toll on the bottom line.

“The decision for us to invest back into the business is something some shareholders will see favourably and others will see unfavourably,” he said.

“But we are not here to build a business in a year.”

Myer reported a net profit of $98.5 million for the year to July 26, down from $127.2 million the previous year.

Three years earlier, the group’s net profit stood at $159.7 million.

Total sales for the past year were flat at $3.14 billion. But key like-for-like sales — which strip out the impact of stores that have opened or closed — were up 1.2 per cent.

Mr Brookes said the group was closely watching the activities of Woolworths South Africa, which bought David Jones for $2.2 billion in July.

Woolworths South Africa — not affiliated with its Australian namesake — has flagged plans to boost company-owned brands from the 3.5 per cent of sales to as much as 30 per cent.

Mr Brookes said Myer, which this year generated a record 20.3 per cent of sales from private label brands, had a headstart on its rival.

“Establishing a private label in the fashion business is a very complex and difficult thing to do. It takes a lot of engineering,” he said. “We’re comfortable we’ve got the advantage of time and learnings and loyalty from our customers.”

Mr Brookes said Myer had considered the risk that David Jones’ new owners could trigger a price war as the group sought to lure customers to the revamped business.

“If there is erratic behaviour, then they are another competitor and our job is to make sure the Myer customer is not disadvantaged,” Mr Brookes said.

Q1: Identify five items of information that would be useful in deciding whether to invest in Myer shares

Q2: List each item of information and for each item ; explain whether it creates a positive and negative image for potential investors

Answer 1

1.

Five items of information that would be useful in deciding whether to invest in Myer shares are:

* MYER has suffered its worst single-day market rout since its inglorious return to the bourse five years ago, after revealing it has suffered yet another slump in earnings.

* Bernie Brookes declared the group’s net profit had fallen for the third year in succession and was down almost 40 per cent since 2011.

* Shares in the struggling ­department store chain plunged 13 per cent yesterday, wiping $188 million off its market value and undoing two months worth of gains.

* Myer reported a net profit of $98.5 million for the year to July 26, down from $127.2 million the previous year.

Three years earlier, the group’s net profit stood at $159.7 million.

* Mr Brookes said Myer, which this year generated a record 20.3 per cent of sales from private label brands, had a headstart on its rival.

2.

* MYER has suffered its worst single-day market rout since its inglorious return to the bourse five years ago, after revealing it has suffered yet another slump in earnings. - It creates a negative impact on the potential investors and drives them away from investing.

* Shares in the struggling ­department store chain plunged 13 per cent yesterday, wiping $188 million off its market value and undoing two months worth of gains. -  It creates a negative impact on the potential investors and drives them away from investing.

* Bernie Brookes declared the group’s net profit had fallen for the third year in succession and was down almost 40 per cent since 2011. -  It creates a negative impact on the potential investors and drives them away from investing.

* Disappointed investors stampeded the exits nonetheless, delivering Myer its worst single-day market performance since it was floated in November 2009. -  It creates a negative impact on the potential investors and drives them away from investing.

* Myer reported a net profit of $98.5 million for the year to July 26, down from $127.2 million the previous year.

Three years earlier, the group’s net profit stood at $159.7 million. - It creates a negative impact on the existing investors due to low profits and drives them away from investing but it also attracts new investors as they are in profits.

* Total sales for the past year were flat at $3.14 billion. But key like-for-like sales — which strip out the impact of stores that have opened or closed — were up 1.2 per cent. - It creates a positive impact on the potential investors and drives them in.

* Mr Brookes said Myer, which this year generated a record 20.3 per cent of sales from private label brands, had a headstart on its rival. - It creates a positive impact on the potential investors and drives them in as it is difficult to estabilish a private label in the fashion business