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Investors have soured on Myer Holdings (ASX: MYR) as the department store group reports flat sales and a significant impairment relating to its quasi-merger with Premier Investments, sending shares downwards by more than a quarter and wiping $285 million from its valuation this morning.
The Melbourne-headquartered company has revealed a statutory loss of $211.2 million for FY25 - which for Myer represents the 52 weeks to 26 July - mostly due to a one-off, non-cash impairment of $213.3 million for the Apparel Brands deal with Premier.
The scrip-based agreement, which brought such brands as Just Jeans, Jay Jays, Portmans, Jacqui E and Dotti into the Myer stable, was announced in mid-2024 when Myer securities were trading at 64.5 cents per share (cps) - a level that rose to 98.5cps by the time the transaction was completed.
Acquisition accounting has meant that Myer must recognise this differential via the impairment on its balance sheet, even though yesterday the share price was similar to when the deal was announced, and now it is far lower at 47.5cps - a level not seen since 2022.
Transition and merger integration costs have cut a further $34.7 million from Myer's bottom line as significant items, with the group expecting to reach its target of gaining $30 million in annualised synergies from the merger by the first half of FY27.
Myer reports a 13.8 per cent reduction in earnings before interest and tax (EBIT) to $140.3 million, as the inclusion of Apparel Brands was more than offset by "challenged retail conditions which impacted profitability and increased costs of doing business which affected both businesses".
In May the group reported a 1.9 per cent lift in sales over a 16-week period, but overall growth for the half-year softened to 1.7 per cent while total growth for the year was 0.5 per cent - below the rate of inflation - to reach almost $3.7 billion.
Underlying net profit after tax (NPAT) was in positive territory at $36.8 million when excluding significant items, although this figure was still down 30 per cent year-on-year.
"FY25 was a transition year for Myer Group as we reset the base to position the business for long-term growth. Despite challenging macroeconomic conditions and tough retail markets in Australia and New Zealand, we achieved positive sales growth in our first period as a combined group," says Myer's executive chair Olivia Wirth.
"We are making significant progress in executing our strategy for the Myer Group, building a diversified omni-channel retail powerhouse to drive growth and deliver sustainable returns for shareholders.
"There is real momentum building across the business thanks to the energy, strong engagement, and focus of dedicated team members in implementing important changes while achieving high customer satisfaction."
Wirth says the company has started to see the benefits flowing through from the integration of Apparel Brands.
"The addition of Apparel Brands represents a significant diversification of our sales with 26 per cent of sales now coming from brands owned by Myer Group," she says.
"In executing our Myer Group growth strategy, we are moving at pace and gaining early traction, including the launch of MYER one at Apparel Brands in August, the overall MYER one relaunch on track for October, Just Jeans’ new format store rollout, as well as introducing new brand partners and welcoming back brands returning to Myer Retail.
"We have continued to invest in customer experience and expanded our MYER one loyalty program, which now has a record 4.7 million active members, and its highest ever tag rate."
The executive also points to decisive action taken to address operational challenges, including completing a comprehensive review of Myer's national distribution centre where such issues negatively impacted EBIT by $4 million in the second half and $16 million for the full year.
Myer notes that temporary mitigation measures have been implemented at the facility to assist in restoring stock replenishment and cross-dock facilities, while next month arrangements will commence with a third-party logistics provider to support the peak trading period over the last few months of the calendar year.
Myer claims a long-term solution has been developed and approved by the board, with costs in the order of $32 million and completion targeted for FY27.
"We now have temporary measures in place to manage our next peak periods through Black Friday, Christmas and Boxing Day and have developed a long-term solution for the NDC," says Wirth.
"When fully operating, the NDC will underpin our omni-channel network strategy and produce substantial cost and efficiency benefits for the business and improve the experience for customers.
"In addition to being a transition year, during FY25 we faced challenging macroeconomic conditions and rising costs of doing business.
"By contrast, our trading for the first seven weeks of FY26 has been positive and we are cautiously optimistic about the year ahead, with emerging pockets of improving consumer strength. We also expect to see a return on the enhancements and investments we have made to strengthen the group and offset ongoing cost of doing business headwinds."
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