Why Myer Holdings Ltd’s share price jumped today

Credit: Yoshi Mohri

Shares of department store giant Myer Holdings Ltd (ASX: MYR) rose nearly 6% today to trade at $1.04 after the company provided investors with a trading update. It’s the stock’s highest price in nearly three months.

So What: In September, my colleague said:If you’re ever out shopping and want to escape the crowds a good tip is to head into a department store operated by Myer.”

Indeed, Myer has struggled to remain relevant in recent years, especially in light of tougher speciality retail competition. In the 2015 financial year, for instance, it reported sales growth of just 1.7% to $3.2 billion, while comparable sales (that is excluding stores that did not exist in the prior corresponding period) rose a mere 1.1%. Net profit for the year also fell 21.3%.

A revamp of the business was necessary with the company recently announcing a turnaround strategy, suitably dubbed ‘New Myer’. So far, it appears to be working with comparable store sales up 3.9% during the first quarter to $714.8 million. The result, which was bolstered by August’s ‘Spring Clean’ clearance, was in line with expectations.

Also encouraging was that the company experienced strong growth in its online store with an “increasing uptake of click and collect”. Growing an online presence is vital for Myer as it fights to stay relevant in an increasingly globalised retail market.

The company also maintained its guidance for an underlying net profit after tax of between $64 million and $72 million for FY16 and will consider its stance on its dividend policy at the half-year and beyond.

Now What: Myer’s results were encouraging for shareholders, while a strong sales update from fellow retailers Kathmandu Holdings Ltd (ASX: KMD) and David Jones (now owned by South Africa’s Woolworths) could also suggest the industry is in for a strong Christmas period.

Whilst encouraging however, there is still no certainty that Myer’s turnaround strategy will prove successful in the long run. Indeed, success cannot be proven in the space of just three months so Myer will need to show it can consistently maintain stronger results before I’d even consider an investment in the retailer.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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