The Myer Holdings Ltd (ASX: MYR) share price has done very well in recent months. It has risen around 30% in 2023 to date and gained 60% in the last 12 months.
That compares very favourably to the performance of the S&P/ASX 200 Index (ASX: XJO). In 2023 to date, it's only up by 0.1%. Over the past year, the ASX 200 has dropped by 6%.
The ASX retail share has managed a strong turnaround in its sales and financials. This has enabled the business to largely hold onto the gains it has achieved, though investors may have been hoping for even more.
Let's have a look at some of the highlights from the recent FY23 half-year result.
Earnings recap
Myer reported that in the six months to 28 January 2023, it grew total sales by 24.2% to $1.88 billion. Despite the end of lockdowns, online sales still represented around 20% of total sales.
The operating gross profit grew by 17.4% to $683.2 million. This margin decreased 212 basis points to 36.3% which included the "unfavourable impact of higher shrinkage and foreign exchange movements".
The cost of doing business (CODB) was $442.5 million, or 23.5% of total sales, representing an improvement of 126 basis points.
Myer's net profit after tax (NPAT) was $65 million, an increase of 101.4%. Profit growth can be key for the Myer share price going higher. This was the company's highest profit since the first half of FY14.
The business also said its balance sheet was stronger, with net cash at the end of the period up $50 million to $267 million and inventory "well-controlled at the same level as the prior corresponding period".
Myer also declared a total interim dividend of 8 cents per share, comprising an ordinary dividend per share of 4 cents per share and a special dividend of 4 cents per share. This is "utilising significant accumulated franking credits".
Can the Myer share price keep rising?
Myer is now focused on ensuring that it's making profitable sales. Profit growth can certainly help drive the Myer share price upwards. And, in turn, sales growth can be a boost for profit.
Therefore, it's very promising that Myer was able to reveal its sales after Christmas had made a good double-digit rise.
According to the ASX retail share, in the eight weeks after Christmas, department store sales were up 16.1% compared to the prior corresponding period. The Myer boss John King said:
Like all retailers we remain cautious about the macro-economic environment, however, we are pleased with the momentum we are generating through the customer first plan and have a strong pipeline of initiatives still to come, which will ensure we are well placed for the future.
According to Commsec, Myer is expected to generate earnings per share (EPS) of 10 cents. That means that Myer is valued at less than 9x FY23's estimated earnings. I think it would be quite reasonable for Myer to trade with a price/earnings (P/E) ratio of 10, which would be a rise of around 15%. It could also keep paying a very attractive dividend yield.
However, I'm not sure if Myer is the best ASX retail share to buy – I think Myer will need to keep growing its online sales to offset the long-term uncertainty of department store sales.
