Department store chain Myer did something unusual on Thursday.
The retailer teased the market with a preview of its annual result, saying it would return to profitability in the second half of a financial year for the first time since 2016-17.
But while Myer’s share price shot up as a result, some analysts argued the update was less a good news story than a thinly veiled attempt to frustrate billionaire Solomon Lew’s attempt to take over the company.
According to the update, Myer will book a $47 to $50 million after-tax profit in 2020-21 after a loss of $11.3 million in the previous financial year, the company revealed.
Sales are up 5.5 per cent to $2.6 billion – $539 million of which came from online.
Those are overwhelmingly positive numbers for a retailer that struggled during COVID – though it should be noted that the company received $50.7 million in JobKeeper payments.
Myer chief executive John King said the results showed his turnaround strategy for the department store was paying off and leading to higher profitability.
“Our customer-first strategy continues to gain momentum, delivering a significantly improved full-year profit result despite ongoing COVID impacts in FY21 [financial year 21]” he said in a statement to the ASX.
Myer’s share price shot up 8.5 per cent after the trading update to equal pre-pandemic levels at 51 cents.
Myer update blow to Lew
What’s unusual is Myer doesn’t normally drip-feed information like this.
The company reports full-year results after most other retailers in a typical year and rarely offers profit updates.
But this year is far from typical for Myer and it’s not just because of COVID-19.
Billionaire retailer and shareholder Mr Lew is circling the board like a shark amid efforts to fire Myer’s leaders and install his own loyalists at the company.
It appears to be the world’s slowest corporate takeover as Mr Lew – Myer’s largest single shareholder – looks to cement his retail legacy.
The Premier Investments owner has demanded sales data from Myer for months and so it’s ‘mission accomplished’ on that score.
But one retail analyst believes there was an ulterior motive behind the company’s trading update on Thursday.
Consultant Brian Walker said reports that Myer is raising capital to dilute Mr Lew’s shares sound all the more compelling in light of the profit tease.
“A good news story attracts shareholders,” Mr Walker said.
Paint on a lemon?
In that sense, a positive sales update that makes Myer’s capital more valuable is a no-brainer – particularly if it shows a recovery is under way.
But key data was missing in the trading update, suggesting Myer is pulling a classic used car salesman tactic and slapping a lick of paint on a lemon to raise the sticker price.
There were no same-store sales or sales-per-square-metre-of-retail-space figures – key data points required to accurately evaluate the business.
And so Mr Walker said it was difficult to assess the health of the underlying business.
“We can’t see underneath the bonnet,” Mr Walker said.
“Where Myer can be congratulated, though, is the growth of their online.”
One in every five dollars going through Myer’s business is now online, with e-commerce increasing 27.7 per cent over the past year alone.
That massive growth has poured millions of dollars into Myer’s coffers.
The company’s net cash position is now about $112 million, which is up from only $8 million last July – an increase of 1300 per cent.
This shows Myer is in a better position than it was 12 months ago, but that’s hardly surprising given the effect the pandemic has had on retailers.
Taxpayers have paid the company more than $50 million over the past 12 months through various government support schemes, and that figure excludes rent relief from landlords, as federal and state governments wrote the relief into legislation.
Shareholders and analysts will have to wait until September to gain a clearer understanding of Myer’s position.
That is when the business will publish its full-year profit for 2020-21 to the ASX.