In morning trade the Myer Holdings Ltd (ASX: MYR) share price has tumbled lower following the release of its full year results.
At the time of writing the department store operator's shares are down almost 7% to 40.5 cents.
Here's how Myer performed in FY 2018 compared to the previous year:
- Total sales declined by 3.2% to $3,100.6 million.
- Comparable sales down 2.7%.
- Total online sales were $239.4 million.
- Cost of doing business increased 1.5% to $1,035 million.
- NPAT pre-implementation costs fell 52.2% to $32.5 million.
- Reported loss after tax of $485.8 million.
- Basic normalised EPS of 4 cents per share.
- No dividend to be paid.
- New term sheet signed with existing lenders to refinance its bank facility.
Overall, I felt this result was largely in line with the low expectations of the market. The massive loss was attributable to implementation costs and individually significant items totalling $541.2 million that were included in its first half results.
On the top line, Myer's subdued in-store sales were partly offset by strong online sales growth. Total online sales came to $239.4 million in FY 2018, accounting for 7.7% of its total sales.
Though it is worth noting that some of these sales related to sales made in-store through iPads and also the online sales of brands such as sass & bide, Marcs, and David Lawrence.
Online sales attributable purely to the Myer online store rose 34.1% to $192.5 million. Management appears optimistic that a new website launch later this month will significantly enhance the overall user experience and boost its online sales further.
Another positive during FY 2018 was the strong second half the retailer had. Myer chief financial officer, Nigel Chadwick, explained that: "Despite the continued challenging retail conditions, the second half performance showed some improvement on the first half, as evidenced by the improved operating gross profit margin and lower net debt despite the fall in EBITDA."
If it has carried this momentum into FY 2019 then things might be a little more positive this year. However, it is unclear if this has been the case as no guidance or trading update was provided by management.
The company also announced that it has signed a binding term sheet with its existing lenders to refinance its bank facility, extending the maturity until February 2021. Management believes this will provide it with a stable platform for the next two and a half years whilst it works to improve the company's financial performance.
The terms of the new secured facility initially provide core and working capital tranches totalling $400 million and relaxed covenant conditions. Myer will need to meet a fixed charges cover ratio of at least 1.65 times prior to paying dividends. As of the end of FY 2018 its ratio stood at 1.59 times.
Should you invest?
Based on this result Myer's shares are changing hands at a lowly 10x normalised earnings. While this looks cheap, I would say it is appropriate for a retailer that is seeing sales and profits slide backwards.
In light of this, I wouldn't be a buyer of Myer's shares until I've seen proof of a return to growth. Instead I would focus on retailers that are growing at a solid rate such as Kogan.com Ltd (ASX: KGN) or Noni B Limited (ASX: NBL).
