Australian retail giant, Myer, have delivered their first underlying net profit in nine years after slashing costs, cutting back on discounting and the growing sales of high-margin, boutique labels.
Although Myer experienced a loss of $8 million in the second half, the retailer was able to record an underlying profit of $33.19 million, rising 2.2 percent during the last 12 months, exceeding consensus projections of $32.7 million. 2018 saw Myer record a loss of $486 million, which made the recently recorded $24.5 million in net profit a significant win for the retailer. This profit comes off the back of strategic budgeting, along with far less excessive one-off costs, which in 2018 were a staggering $518.5 million while in 2019 were a mere $8.7 million.
As part of Myers new strategy, the retailer exited from unprofitable categories and products. This inevitably resulted in a fall in top-line sales with a recorded $2.99 billion, or a 3.5 per cent loss in gross sales. However, this was overshadowed by Myers earnings before interest and tax, yet again out performing the consensus forecast of $56.7 million, totalling $58.5 million or a 3.1 percent increase – after gross margins rose by 65 base points to 38.85 percent, overcoming the 12 point operational cost increase.
CEO, John King fostered the retailers turnaround with the implementation of strategic action, which would see the pull back on discounting, increasing high-margin sales of boutique brands, exiting unprofitable avenues such as furniture, cutting costs and debt, reducing office space, closing underperforming storefronts and placing heavy investment and focus on Myer’s online business. The successful execution of this strategy, under Mr Kings’ coordination, saw Myers’ shares rebound from a 12 month low of 36 cents to 57 cents per unit.
The emphasis on Myers online presence also showed successful return with a 25.6 percent rise translating to $262.3million in sales. High-end, boutique labels also followed a similar trend, rising 1.9 percent, contributing to the experienced boost in gross margins.
Kings’ cost cutting strategy saw Myer announce the closure of 29,000 square metres of lettable floor space or 22,000 metres of selling space with the handing back of locations in Cairns, Belconnen, Melbourne Emporium and Hornsby. This reduction will see Myer save a predicted $10 million annually in rent costs with further cuts forecasted.
In addition to reducing rental expenses, Myer made employee cuts in both their head office and remaining retail locations. This was made possible with the implementation of a more efficient in-store rostering system.
Net debt fell approximately $30 million, seeing the lowest debt level in more than a decade for the iconic fashion outlet. Even with this financial relief, Myer was again unable to pay respective share-holders dividends.