Myer Holdings Ltd (ASX: MYR) reported a slight decline in sales for the third quarter however the reasons given appear legitimate. Three of their top 20 stores are undergoing significant refurbishment and leases on 2 other stores were relinquished in this reporting period. In addition a policy of less discounting was finally implemented. Allowing for these factors sales and profit performance has likely bottomed and positive growth can be expected from FY2015 as the refurbishments complete and 2 new stores in high growth areas are opened.
An interesting development was the online store which continues to grow strongly despite the PR disaster in the New Year period. According to management online sales occasionally enter the top 20 performing stores territory on weekly sales (Myer has 65 full service stores). Against this exclusive brands did poorly over the quarter showing negative growth.
Should the takeover of David Jones proceed, which seems likely, Myer will have to work hard to differentiate itself from the 'new' rival which appears intent on introducing more private labels and broadening market appeal. Hopefully Myer takes the path of deepening the product mix in the categories it is better at (midmarket fashion, children's wear, small electrical goods etc.).
Myer ($2.16) sells at 10 time estimated 2015 earnings and a fully franked dividend of 7%. Although there is a lot more for Myer to do, there is value in this stock at current prices.
Premier Investments Limited (ASX: PMV) may be looking at Myer with fresh interest (after all, it has poached a number of Myer executives in recent years). With a market capitalisation higher than Myer, Premier could see some synergies in distributing its brands through a physically dominant department store footprint; and may figure it has the answers to Myer's structural problems. Most importantly, Solomon Lew is a born retailer and recognises the value in a digitally aware bricks & mortar presence.
Whatever, Premier Investments is jogging along nicely with all brands improving performance in the first half. Smiggle (children's stationer) continues to impress with sales up strongly and the latest expansion into the UK expected to reach breakeven in FY2015.
Premier Investments ($9.31) is selling at 17.2 times estimated 2015 earnings and a fully franked dividend of 4.4%. With $318m cash on hand and a price to book ratio of 1.1 this patient company has plenty of options available.
