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Myer Holdings Ltd reports full-year results: Is it a bargain?

Headline results from FY2014 suggest Myer Holdings Ltd (ASX: MYR) continues to decline (this is the fourth year of falling profits). Revenues were sluggish, net profit fell 22.6%, gearing rose slightly to 28.7%, retail conditions were erratic and the lower A$ added to costs.

Well, the market didn’t like it, with the share price falling 8% soon after opening. A bit odd as there were positive pointers in the accompanying presentation:

• Myer has continued to invest heavily in its own business – $87m in 2014 – two new stores, store refurbishments, further upgrades of distribution channels and development of fully owned brands. Over the year two other stores (Dandenong and Elizabeth) were closed permanently and further rationalisation of stores can be expected.

• Good growth over 2014 in high margin cosmetics (despite price deflation), fashion accessories, youth and general appliances.

• Achieved high cash generation, largely attributed to recent investments in point-of-sale and inventory systems.

• Online sales growth was up 100% over the year and was accompanied by an increase in transaction values.

• Inventory turn improved to 3.6 from 3.4 and aged stock percentages declined; indicating management is on top of the game.

Management suggested the benefits of the ongoing refurbishment program will become apparent over the course of 2015. In addition marketing strategies will be revitalised with a special focus on prime selling periods (Christmas etc.). This strategy will be supported with new online initiatives and new partnerships with selected brands.

With its own brands now comprising 20% of sales Myer has considerable flexibility in the market. In addition 15.6% of sales are through concessions. Although the growing swells of international retailers pose a threat they also (if located nearby) help increase foot traffic, some of which will mean increased sales to Myer.

Some experts continue to maintain physical stores will stay under severe pressure from pure online retailers. However – ‘the more things change, the more they remain the same’. This according to a recent US survey which suggests bricks-and-mortar stores are once again the preferred way to shop amongst teenagers and young adults.

In my view Myer ($2.25) offers value and is a sound buy for longer-term investors.

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Motley Fool contributor Peter Andersen has shares in Myer Holdings Ltd

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