bernie brookes

Fellow and Prospective Shareholders in Myer Group,

Anyone who invests in the retail sector would be well served to listen to the archived webcast of the latest Myer results presentation.

This is only the fourth time I've heard Bernie Brookes wax lyrical (and boy, can he wax!) on the arcane subject of fashion retailing.

In my view, the manner in which Myer management is going about adding value to the company is very, very impressive, to say the least:
* Systematic and unrelenting focus on the drivers of gross profits,
* Mastering the silky science of merchandising,
* Commercial optimisation of the store floor area,
* Investment in systems, both at POS and along the supply chain
* Understanding and segmentation of the customer demographic
* Judicious thought and diligence before deciding to deploy company resources to new store development

This is an executive team that not only understands its business remarkably well, but it also has a real appreciation for the expectations of shareholders and the maximising of returns to shareholders and at the same time re-investing in the business to enhance the brand.

That earnings forecasts for MYR remained unflinchingly unchanged and that the company has exceeded dividend expectations during what has been a really tough retailing environment over the past 6 months, speaks volumes about the quality of the business and its management, I believe.

Once again, the inane short-termism of the equity market has been evident in the listed histroy of MYR. Just because it was suspected that company was going to "miss" prospectus forecasts, the market sold the stock down to a an unrealistic valuation level of 5.5x EV/EBITDA, 9.4x P/E and a DY of 8.0%.

Today, a mere 3 months later, those same "investment professionals" are happy to be buying the stock, even though is now far less undervalued, at 7.0x EV/EBITDA, 12.4x P/E and a DY of 6.1%.

I do, however believe that Mr Brookes' 5% to 10% NPAT growth guidance is a case of classic low-balling the market. With the internal CODB reduction initiatives underway, further GP Margin increases (A$ strength, quite aside), and the debut contribution from new stores, I believe MYR will continue to exceed expectations. A resilient Australian consumer - certainly more resilient than current economist prognostications - add to the scope for MYR (and other disciplined retailers) to continue to perform more than satisfactorily for the foreseeable future.

Prudent Investing

Cameron