Ann: Half-Year Results - Release and Presentation, page-17

This is part of an 'AFR' article that'll be in the paper tomorrow (bearing in mind in some states, it's a public holiday):

(I'd have thought MYR's balance sheet is better than 'reasonable', but I'm not an accountant):

King on right track

DNR Capital’s Chris Tynan says while Myer has shrunk to just a $423 million market cap, it remains a well-known company and resonates with consumers.

“There were some good signs: a dividend, and it is unwinding that terrible long tail of stores that Bernie Brookes, the CEO during PE ownership, entered into ahead of the float,” Tynan says. “John King is getting out of these long-dated leases in regional areas that were never going to work.

“I’ll also give Myer credit for their omni-channel strategy. Stores with omni-channel offers are finding their place. The consumer values a bricks-and-mortar experience – it’s now an advantage to have this in tandem. This is a clear advantage.

“While online is less profitable, having that balance appears to be working in their favour. Online in department store would be more profitable than supermarkets.”

Tynan does not believe that Myer is the most compelling opportunity, but it has a place in the retail segment – with rival David Jones moving more upmarket under its South African ownership and the discount department store chains such as Kmart and Big W downmarket.

He also backed King – a rag trader who walks the store floors and talks to staff – as opposed to a pure play online retailer often run by techies. Adore Beauty and Kogan would fall in that bucket.

While Myer’s online sales are at the expense of store sales, and those are less profitable given the inefficiency of its fulfilment and distribution arrangement, this should be remedied through a 40,000-square-metre facility in Victoria due to open in fiscal 2022-23.

This infrastructure will send out orders for both stores and online, hold 100,000 products and should deliver further fulfilment efficiencies and greater profitability.

Another positive is Myer’s balance sheet, which is in a reasonable position.

No doubt major shareholder and long-time thorn in Myer’s side Solomon Lew will be poring over the latest figures. No shareholder will be unhappy with a share price rally of 24 per cent to 51¢ on Thursday, but given Lew initially bought into Myer in March 2017 at about $1.13 a share, he remains well behind.

Some say it’s not whether Lew will take control of Myer, but when and at what price. He has long held ambitions to own the department store and recently splashed $15 million on topping up his stake through his listed investment company, Premier Investments, to just under 20 per cent. Under takeover provisions, Lew can creep up to 3 per cent every six months.

Based on CLSA analyst Mark Wade’s numbers, Myer is valued at a multiple of 8.5 times maintainable after tax earnings – roughly a 50 per cent discount to the overall market but justified given the company’s weak track record.

Despite the positive signs, Wade still needs more convincing that Myer has fully turned a corner, keeping his “underperform” rating. He also noted that higher living costs and a return to travel could weigh on the entire sector.

However, if Myer can get a clear runway for the next 12 to 18 months to confirm that this is not a blip on the radar, and it continues to shrink the store footprint, maintain correct pricing structure and keep offering the right brands to their changing demographics, then it just might have a chance of returning to sustained growth again.

This will not be easy. HLB Mann Judd’s business restructure and risk advisory partner, Todd Gammel, is expecting more distressed sales over the next year as retailers battle rising costs, supply chain issues, labour shortages and higher inventory positions.

Time will tell if Myer falls into that basket.