Does an 86 per cent earnings spike mean Myer has turned a corner?

Does an 86 per cent earnings spike mean Myer has turned a corner?

Photo: Myer Sunshine Plaza.

Update (4:56pm AEST): A Myer spokesperson disputes the inference in the original version of this article that the company would not have been profitable given its expected NPAT is lower than what it received in JobKeeper payments, on the basis that net JobKeeper payments were $32 million after tax and Myer would have taken cost cutting measures in the absence of a wage subsidy. The story has been edited to reflect this. 

Shares in iconic department store Myer (ASX:MYR) stormed to 12-month highs this morning after the group reported a surge of 86-91 per cent in expected earnings to a range of $174-179 million for FY21.

The EBITDA forecast is unaudited and excludes any individual significant items or implementation costs, but at face value it is a major improvement and even better than pre-COVID earnings of $160.1 million in FY19.

So while minority investor Premier Investments (ASX: PMV) has been urging for a board overhaul, it appears Myer has been not only lifting sales by 5.5 per cent to $2.67 billion, but also its profit margins.

For a legacy brand which for a long time had its feet stuck firmly in the hardened concrete of bricks-and-mortar retail, Myer has also managed to increase online sales by 27.7 per cent to $539.5 million, now representing more than a fifth of revenue. 

Net profit after tax (NPAT) could be anywhere between $47 million and $50 million, and Myer managed to raise its net cash position from $8 million at the end of June last year to $112 million a year later.

However, this NPAT is much less impressive when you consider Myer received $51 million in JobKeeper payments in August and September, which - unlike many of its competitors - the company is not paying back. A Myer spokesperson adds that post-tax the net wage subsidy received was $32 million. 

In the December half, Myer also had $18 million in rent and outgoings waivers.

So it is clear that without JobKeeper and waivers Myer's profits would have been very thin, although a spokesperson for the company emphasises that in the absence of these supports Myer would have taken other actions to reduce costs in light of the COVID-19 pandemic.

The result is still better than FY20 when Myer's losses stood at $11.3 million despite $93 million in JobKeeper payments. 

Myer's statutory losses were even worse before COVID-19 began with results $33.2 million in the red in FY19.

More encouraging still is Myer's claim it expects to return to second half NPAT profitability for the first time since FY17, at around $4-7 million. None of that came from JobKeeper or rent waivers, with a material improvement in performance despite the lockdowns. 

"Our Customer First Strategy continues to gain momentum, delivering a significantly improved full year profit result, despite the ongoing COVID impacts in FY21," CEO John King said in today's update.

"We will provide further detailed commentary at our audited results announcement in September."

At the time of writing MYR shares were up 9.57 per cent at $0.515 each, up from $0.29 at the start of 2021 but only just higher than their $0.475 level at the beginning of 2020.

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