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Results: Myer returns to profit growth but continues to suspend its dividend

The Myer Holdings Ltd (ASX: MYR) share price will be on watch this morning following the release of its full year results this morning.

How did Myer perform in FY 2019?

For the 12 months ended July 27, the department store operator’s focus on profitable sales led to a 3.5% decline in total sales to $2,991.8 million. Myer reported a 1.3% decline in comparable sales, excluding Apple products which were discontinued in May.

Digital sales continued to grow strongly, rising 21.9% to $292.1 million over the period. This means they now account for 9.8% of total sales.

And thanks to a 3.1% decline in its cost of doing business and a 65-basis point increase in its gross margin, Myer posted a 7.2% lift in EBITDA to $160.1 million and a 2.2% increase in net profit after tax to $33.2 million. The latter is the first time it has grown its profits in almost a decade.

Despite this, the company’s board elected to keep its dividend suspended.

Myer’s chief executive officer and managing director, John King, appeared to be pleased with the early progress the company has made with its Customer First Plan.

He said: “This result demonstrates our focus on profitable sales, a disciplined management of costs and cash, as well as deleveraging the business. In the first year of the Customer First Plan, we have progressed a number of strategic initiatives, but recognise there is much more to be done to transform this business in the interests of customers and shareholders. We have made progress working with landlords, through a portfolio partnership approach, to reduce our footprint and refurbish stores to transform the customer experience, whilst simultaneously delivering material cost savings.”

Mr King was particularly pleased with Myer’s digital business and appears confident that it can continue to grow.

“The continued strong growth in digital sales, now representing our largest store and 9.8% of total sales, was particularly pleasing. This growth reflects both the upgraded website that was launched in September 2018 and a significant increase in products available online, which included the addition of several concessions. We aim to match our store and online ranges by the end of this calendar year and are confident that there are significant opportunities to continue to grow this channel,” he added.

Outlook.

The chief executive warned that trading conditions would be challenging in FY 2020 due to the macro environment and subdued consumer sentiment.

However, he revealed that the company has “identified a number of opportunities to improve productivity and to continue to reduce costs, through both cost savings and efficiencies, across our supply chain as well as other noncustomer facing activities.”

No formal guidance was given for the year ahead.

How does this compare to the market’s expectations?

Whilst I felt that this was a positive performance given the struggles it has had, it is worth noting that its shares rocketed higher yesterday following a bullish broker note out of Ord Minnett.

Its analysts forecast a small decline in sales and a 9.5% increase in underlying net profit after tax to $35.6 million.

Myer has fallen well short of this today, which could potentially mean its shares reverse the strong gains they made on Wednesday.

In light of this, I think investors looking for exposure to the retail sector might be best sticking with Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL) for now.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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 Scott Phillips.

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