The Myer Holdings Ltd (ASX: MYR) share price is on watch today after the department store conglomerate gave an update on trading after the close of market last night. Myer revealed that trading was severely impacted by COVID-19 and that finance with its existing lenders had been extended. The Myer share price is already 61% lower in year-to-date trading.
Stores closures
Myer closed all 60 stores in late March, standing down approximately 10,000 team members. Stores were progressively reopened from 8 May 2020, with a majority reopened by 27 May 2020. Myer has revealed that store closures had a severe impact on sales. In addition, sales have been severely impacted by a significant reduction in foot traffic, especially at CBD locations. In the latest blow, metropolitan Melbourne stores have now been closed for a further period of six weeks under stage 4 restrictions.
Online channel
Myer says that growth in online sales was strong during 2H FY20, and accelerated significantly during the period of store closures. The retailer will no doubt be hoping for a further boost in online sales during the latest lockdown. But given Myer conducts the majority of sales via its physical stores, online sales are highly unlikely to compensate for revenues lost to store closures.
Cost measures
Myer says it has instituted disciplined cost control measures in the face of the pandemic. It has also received support from the federal government via JobKeeper and rent relief and deferrals. This means that despite the loss of revenue from store closures, the company expects to report a small cash positive position at the end of FY20. This compared favourably to net debt of $39 million at the end of FY19.
Agreement has been reached with Myer's bankers to extend its banking facility until August 2022. The amended $340 million facility is $20 million less than the existing facility, in part reflecting the company's success in deleveraging its balance sheet. Lenders have agreed no covenant testing will be required in FY20 given the significant impact of COVID-19 on Myer's operations in 2H FY20.
Turnaround
Prior to the onset of coronavirus, Myer was in the midst of a multi-year turnaround plan which aimed to consolidate store offerings and improve profitability. The retailer saw a 3.8% drop in total sales in 1H FY20 which fell to $1,607.9 million. Online sales grew 25.2% to $168.2 million. This represents around 10% of total sales, meaning it was not enough to offset the decline in in-store sales during the half.
About the Myer share price
Myer had been experiencing subdued conditions even prior to the pandemic – profit fell 26.9% in the first half and the dividend remained suspended. The company still has considerable work to do to execute its turnaround plan, and must now do so in some of the toughest operating operating conditions in its history. The Myer share price has recovered 90% since its March low of 10 cents but is still down 61.22% over the past year. The Myer share price has not traded over $1 since May 2017.
