Myer first-half loss final nail for board: Premier Investments'...

Myer first-half loss final nail for board: Premier Investments' Solomon Lew
Solomon Lew has stepped up his campaign for board change after analysing Myer's results for the January half. Josh Robenstone

Myer's record first-half loss was the "final nail" in the coffin for the retailer's directors, says major shareholder Solomon Lew, who has issued a new call to investors to support his attempt to oust the entire board.

Mr Lew has stepped up his campaign for board change after analysing Myer's results for the January half, when underlying net profit plunged 36 per cent to $40.1 million and impairment charges and one-off restructuring costs led to a bottom-line loss of $476 million.

Mr Lew said the bottom-line and underlying results would have been even worse if Myer had written off other underperforming assets such as fashion label sass & bide, and booked recurring expenses above the line rather than as one-off costs to "fudge" the numbers.

"These so-called 'one-offs' actually seem to be more of a constantly recurring feature of Myer's mathematical gymnastics," Mr Lew's Premier Investments said in a statement released on Thursday.

Myer's business deteriorated sharply in the January half, with store sales down 5.8 per cent and online sales growth halving between the first and second quarters (from 67.8 per cent to a still-healthy 35.9 per cent).


"The numbers released yesterday actually reveal that, far from being a 'standout' for Myer, its online sales growth rate is dropping, and this is potentially the key driver of its most recent downgrade," Premier said.

However, Myer said Mr Lew had erred in his calculations, saying online sales included sales in store on 2500 iPads.

"The facts speak for themselves, Myer's online business continues to deliver impressive sales growth of 48.9 per cent on the back of a strong performance in the first half of 2017 and we are devoting additional resources to maximise its potential," a spokesman said.
Risk of more write-downs

Mr Lew warned that the July half would be even worse and predicted a large operating loss, placing further pressure on the balance sheet and debt covenants.

This is consistent with forecasts from analysts, including Citigroup, UBS and Deutsche Bank, who have cut full-year estimates 5 to 20 per cent and expect Myer's underlying profit to fall to about $34 million, implying a $6 million loss in the July half.

Mr Lew also flagged further impairments, saying that as long as Myer's market capitalisation, about $350 million, remains below shareholders equity, which fell to $580 million from $1.15 billion, there was a risk of further asset write-downs and therefore more risk that debt covenants would be breached.

Myer is in discussions with bankers to negotiate more-lenient covenants and refinance $420 million in debt facilities due to expire next year. However, analysts say financing costs are likely to increase.

Mr Lew also questioned whether Myer was squeezing suppliers and extending payment terms, pointing out that despite rapidly declining sales, inventories were flat (January 2018 v July 2017) yet trade and other creditors rose by $92 million to $471 million.

The veteran retailer criticised the board's decision to back away from management performance targets reset in only November.

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