Myer comes in flat, looks toward developing more online sales

Store upgrades and IT business expansion cost take a bite out of profit.

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Department store retailer Myer Holdings (ASX: MYR) announced a flat 2013 sales result, continuing the trend since 2011. It is still struggling with the weak consumer market and trying to adapt to new customer trends that increasingly favour internet sales.

Revenue was up a mere 0.8% to $2.62 billion from $2.61 billion. Net profit was proportionately worst, down by 8.7% to $129.9 million from $141.1 million.

The cost of goods decreased slightly, but the biggest change affecting earnings before interest and tax was the $38 million increase in selling expenses, part of which was due to the investments in IT to expand the online omni-channel sales segment.

The company, as well as other retailers like David Jones (ASX: DJS), Specialty Fashion Group (ASX: SFH) and Harvey Norman (ASX: HVN), is moving to expand its online business to offset the decreasing amount of foot traffic into the stores. It realises that it has to shift its business to the way shoppers are interacting with and purchasing from stores, and are developing its “bricks and clicks” strategy to do so.

Bernie Brooks, Myer CEO, said, “Our omni-channel offer has continued to strengthen and key customer metrics of online sales, page views and average monthly visits have all more than doubled since last year. A new order management system has recently been implemented which will provide significant efficiency gains and provide customers with a more consistent experience across all channels.”

To facilitate higher volumes of business expected to come from online, the company is developing a dedicated online fulfilment centre, which should be operational in October. This will decrease shipment and delivery times and cost.

This year, three new stores were opened in Fountain Gate, Townsville and Shellharbour. Three of the top 20 stores are to be refurbished during FY2014, so the company is expecting that expenditure will mostly affect first half earnings, which then should trend upwards into FY2015. One store, in Fremantle, was closed in January 2013.

In the results presentation, CEO Brooks stated the view, most likely shared by Harvey Norman’s Gary Harvey, that he hopes the new Liberal government will review the current “free kick” that overseas and pure-play online retailers get since they are not subject to the 10% GST, which gives them an unfair price advantage.

Foolish takeaway

During times of business transition, companies have to take on a lot of extra short-term cost, and that hits their bottom line. These are the very same things, though, that improve future earnings, and if were not done, the total value of the company would suffer.  Long-term investors have to see what the improvements and development are supposed to deliver, and keep up with the reports and announcements to make sure companies are staying on track with plans.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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