Investors are able to trade shares of Myer Holdings Ltd (ASX: MYR) for the first time since the retailer announced its $221 million capital raising, and the market's response says it all.
So What: The trading halt on the stock was lifted this morning with Myer's shares quickly losing more than 22% to trade at just 94 cents. It's the first time the stock has traded below the $1 mark — at least since the company made its return to the ASX in late 2009. On Tuesday, the retailer revealed its earnings results for the 2015 financial year.
Although sales rose 1.7% for the year, the group's net profit after tax (including significant items) plunged to just $29.8 million down 70% on the prior year.
As if that wasn't bad enough, management announced that it would raise $221 million from investors to reduce core debt, and help fund its $600 million 'New Myer' strategy aimed to revitalise sales and earnings growth over the next five years following a sustained period of declines in recent years.
Under the strategy, Myer will strive for a leaner business model with improved productivity and a re-energised range, whilst also providing consumers with a better in-store experience.
Meanwhile, a large percentage of its stores will likely be closed to force down costs. The company's chief executive, Richard Umbers, forecast a net profit between $64 million and $72 million for the current financial year, excluding the costs associated with implementing the strategy.
Now What: Myer announced today that it has successfully completed the institutional component of its raising and it will now seek to raise another $122 million from retail investors.
Individual investors will be given the opportunity to subscribe for two new shares for every five they currently own at a price of 94 cents each a discount of more than 22% to Monday's closing price — which would explain today's violent reaction from the market.
Although the 'New Myer' sounds more appealing than the current Myer, there are risks associated with an investment in the retailer and there is no guarantee that the turnaround will be successful.
While it could be worth keeping an eye on the company's progress, investors may prefer to look at other retailers such as JB Hi-Fi Limited (ASX: JBH) and Woolworths Limited (ASX: WOW) which I believe look to be the better buys today.
