Financial analysts at Canaccord Genuity are feeling positive over Myer’s future as a retail/department store conglomerate, despite an earnings slip in recent years.
In a note to investors, the investment bank projects that Myer will likely see another slip in its underlying earnings before interest and tax (EBIT) for full-year FY25, but added that this could be recoverable in the years ahead under a larger retail group.
Shareholders at the Australian department store will vote on Thursday this week on whether the entity should carry through with its merger deal with Premier Investments, taking on the group’s five Apparel Brands - Jacqui E, Jay Jays, Just Jeans, Dotti and Portmans - in exchange of 890.5 million shares. Both Premier and Myer boards unanimously approve of the deal, alongside a recently released independent report by advisory firm Kroll.
Canaccord's note reiterated past ASX disclosures by both Myer and Premier’s Apparel Brands which show that combined underlying EBIT (pre-AASB 16) in FY23 was $222.6 million, with Myer reporting $110.1 million and Apparel Brands reporting $112.5 million.
This then fell 32 per cent to $152.0 million in FY24.
Canaccord analysts predict another step down now looks likely in FY25E, “with much of this being recoverable in our view.”
Analysts have also revised its projected merged group net profit after tax (NPAT) to $125 million by FY27e.
“We have previously intimated merged group NPAT to be in the region of $140 million, which allowed for broadly flat operating performance vs FY24, improved performance from MYR distribution centres and owned brands as well as $30m of post-transaction synergies.
“We consider the consumer outlook to be turning, albeit slowly into CY25 (positive disposable income trends, improving consumer sentiment and continuing strong employment dynamics).”
These comments follow the recent trading update by Myer which shows like-for-like sales for the 22 weeks to December 28 were roughly in line with Canaccord’s predictions, down 0.8 per cent compared to the prior corresponding period (PCP).
A portion of this was attributed to the closure of its Werribee store for four months during the first half.
Meanwhile, operating cost pressure and ramp-up complexity at the New Distribution Centre (NDC) have pressured margins with the company noting operating gross profit is pacing $15 million below PCP period to date.
Meanwhile, pre-AASB16 EBIT for the first half is pacing $16 million below PCP to-date.
“We also understand there has been some mix shift towards concession sales during the period,” Canaccord analysts added. “Putting this all together, much of the 3 per cent miss at the gross profit level can be countered in future periods, in our view.”
The note also highlighted that Premier is now projecting that its Apparel Brands delivered global sales between $405 million to $412 million for the first half of FY25, with underlying EBIT (pre-AASB16) in the range of $31 million to $35 million - $16 million to $20 million below PCP.
“In contrast to MYR, this looks to be more so driven by operating cost pressure, not helped by weaker top-line performance,” the analysts wrote. “Whilst this is a step back in the narrative, we don’t see the update derailing the upcoming merger process.”
Canaccord maintains its buy rating, and has revised its share target price to $1.15 per share, down from $1.25.
With the average recent Myer share price of $0.88 per share, the analysts state the department store has a look-through $1.5 billion market cap - assuming the deal goes through, and the 1.7 billion shares currently on issue.