Solomon Lew’s campaign to overthrow the board of Myer has been...

Solomon Lew’s campaign to overthrow the board of Myer has been dealt a blow by a better than expected trading update which indicates the department store retailer’s turnaround strategy is gaining traction.
Two weeks after Mr Lew’s Premier Investments demanded the retailer update the market on recent trading, Myer said it expected to make a profit in the July-half for the first time in four years after a strong rebound in sales over the last six months.
The department store chain expected to earn between $4 million and $7 million in the six months ending July, taking underlying net profit for the year to between $47 million and $50 million.
The guidance, which excludes one-off restructuring costs and writedowns, exceeds consensus forecasts around $33.5 million.
It follows an 8.4 per cent rise in underlying net profit to $42.9 million in the six months ending January - a result bolstered by $50.7 million in JobKeeper subsidies (a $32 million net benefit) and $15.8 million in rent waivers. It is understood Myer did not receive wage subsidies in the second-half.
Myer made an underlying net loss of $11.3 million in 2020 and a net profit of $33.2 million in 2019.

Earnings before interest, tax, depreciation and amortisation for the full year are expected to come in between $174 million and $179 million. This compares with EBITDA of $93.5 million in 2020 and $160.1 million in 2019.
Chief executive John King said the results showed the retailer’s strategy was gaining traction.
“Our Customer First Strategy continues to gain momentum, delivering a significantly improved full-year profit result, despite the ongoing COVID impacts in FY21,” he said.
Total sales for the year ending July had risen 5.5 per cent to $2.65 billion, with sales in the July-half soaring 38.3 per cent.
Online sales for the year rose 27.7 per cent to $539.5 million, after soaring 71 per cent to $288 million in the first-half, and now represent 20.3 per cent of total revenue.
Mr King said the results were achieved despite widespread state lockdowns, several periods of store closures, and travel restrictions, particularly in the first quarter and fourth quarters.
Myer’s balance sheet also remains strong, even though cash holdings have fallen over the last six months.
Myer finished the year with net cash of about $112 million, compared with $8 million at the end of 2020 and $201 million at the end of January.
It had significant headroom in all of its debt covenants and had agreed with its financiers for an extension of its syndicated finance facility to November 2022 to enable an orderly longer-term refinancing.
As Myer shares rose 8.5 per cent to 51¢, shareholders lauded the result, saying it would have been even better if not for lockdowns and poor foot traffic in CBD areas.
“It was excellent,” said Investors Mutual portfolio manager Simon Conn.

“It shows the fantastic work that John King and the management team have done in terms of turning this business around,” Mr Conn said.
“They reported their first second-half profit since 2017 - if it wasn’t for lockdowns ... the profit would have been even higher,” he said.
“We were very happy with the numbers - it’s better than we were thinking - and the question you need to ask yourself is what would that result have been if not for lockdowns in the second half,” said Wilson Asset Management portfolio manager Oscar Oberg.
“There’s a perception out there this business is hugely loss-making, but they just delivered their first profitable second half in four years and have net cash over $100 million,” Mr Oberg said.
Shareholders said Myer’s strong cash position meant the retailer had no need to raise capital.
As reported in The Australian Financial Review on Wednesday, Myer denounced as “nonsense” recent speculation it was planning to issue shares to a major supplier at 30¢ a share and said it had no immediate plans for a placement or share issue to strategic investors.


However, sources told the Financial Review Myer had been approached by potential partners interested in its online business and loyalty program and could crystallise their value by, for example, selling an interest to parties who might also be interested in taking a stake in Myer.
The Sydney Morning Herald also reported on Tuesday that Myer had been shopping a 10 per cent share placement to potential investors as a “defence” aimed at diluting Premier’s 15.8 per cent stake in the company.
The trading update is also likely to take steam out of Mr Lew’s campaign to overthrow the board on the grounds of chronic underperformance.
Premier, which raised its stake from 10.8 per cent to 15.8 per cent last month, is seeking to take control of the Myer board by forcing all three non-executive directors to step down and appointing two of its nominees and an independent chairman.
“I don’t know what Solly [Lew] is trying to achieve,” said Mr Conn.
“Anyone who has got a good skill set that can add value to the business I’d support,” said Mr Conn, “but to date [Mr Lew] hasn’t recommended anyone.”

“The company is looking for new directors ... but any time they have approached anyone to join the board they say no because Solly will abuse me”.
Earlier this month Myer said it had repeatedly asked Premier to provide the names and background information on people it proposed to nominate to the board, but Premier had not done so.
On Wednesday, Premier threatened to “take all steps within its power”, including legal action, to stop Myer from diluting its stake by raising capital.
If Myer genuinely needed to raise capital, it should conduct a pro-rata entitlement issue to all existing shareholders rather than a selective placement, Premier’s lawyers said in letter to Myer’s lawyers.