Myer Full Year Results FY2014
11-Sep-2014 9:26 AM
Continued comparable store sales growth and significant investment for future growth
Full Year 2014 Financial Overview
Operating gross profit
Final dividend of 5.5 cents per share, fully franked, to be paid on 13 November 2014
Myer Chief Executive Officer, Bernie Brookes, said the continued comparable store sales growth was encouraging in a challenging year, with net profit impacted by significant investment to reposition the business, particularly in the areas of store network, omni-channel, and Myer Exclusive Brands.
“As expected, our investment in the business during the year adversely affected profitability however we look forward to the benefits beginning to be realised in FY2015.
“It is pleasing that the business was able to maintain total sales despite the disruption arising from four of our top 25 stores being under refurbishment and two store closures, highlighting our ability to successfully execute our strategy.
“It was particularly encouraging to achieve comparable store sales growth of 1.2 percent for the year and 2.1 percent in the fourth quarter given subdued consumer sentiment following the federal budget as well as unseasonably warm weather during the second half. The business has now delivered comparable store sales growth in eight of the last nine quarters.
“Recognising Myer’s continued strong cash generation and stable balance sheet, the Board has determined a final dividend of 5.5 cents per share, taking the full year dividend to 14.5 cents per share fully franked.
“Myer is positioned to deliver an anticipated improvement in sales in FY2015 benefiting from the recently refurbished stores at Adelaide and Indooroopilly, expansion of our flagship Melbourne City store, the imminent launch of two new stores at Mt Gravatt (October 2014) and Joondalup (November 2014) and the completion of refurbishments at Macquarie (October 2014) and Miranda (November 2014).
“We expect continued online sales growth, and a positive customer response to several exciting new brands including Alex Perry and L Lisa Ho and a strengthened menswear offer with the introduction of brands such as M.J. Bale, Herringbone and Scotch & Soda.
“We look forward to leveraging the valuable insights and experience of our recently strengthened leadership team as we continue to evolve our strategy and deliver improved shareholder value,” said Mr Brookes.
FY2014 Operational PERFORMANCE
Myer’s strategy continues to gain traction with customers. Key operational drivers of the FY2014 performance include:
- Continued momentum in delivering our omni-channel strategy with online sales more than doubling. Customer engagement improved with over 38 million visits to the online store, representing a 74 percent increase compared with last year. We successfully delivered on a number of initiatives including more inspirational online content, the full implementation of our dedicated online distribution centre and the roll-out of ‘Click & Collect’ to all stores;
- Positive customer feedback and an improving trend in customer satisfaction as measured by our Net Promoter Score has been achieved as a result of a number of new customer service initiatives. These include: extended personal shopping services now in 29 stores; enhanced theatre and in-store experiences and the collection of over 42,000 customer interactions via our instant customer feedback program ‘Feedback ASAP’;
- Strong growth in the key categories of Cosmetics, Women’s Footwear and Handbags, Miss Shop (Youth), and Appliances;
- Further growth in Myer Exclusive Brands of 1.7 percent to $638.2 million, now representing a record 20.3 percent of total sales, despite consolidation of a number of brands. Our Myer Exclusive Brands strategy also focuses on developing key master brands and exiting some smaller brands. Pleasingly, the investment in our design, speed to market, and product development capability has delivered positive early results;
- Sales from our leading Australian loyalty program MYER one represented $2,162 million. Once again we distributed over $50 million in Rewards Cards to MYER one members and the average spend on redemption reached a new high of four times the card value in FY2014. The insights from this program continue to be a valuable resource in our decision making across the business;
- Significant sales disruption and costs associated with the refurbishment or expansion of approximately 12 percent of our total space during FY2014;
- There was continued growth in sass & bide sales throughout the year. New management has been transitioned into the business with Christopher Colfer appointed CEO and the recent appointment of Anthony Cuthbertson as Design Director. We look forward to the imminent launch of a new range of leather accessories.
FY2014 Financial Performance
Total sales for the full year were flat at $3,143 million, up 1.2 percent on a comparable store sales basis. Sales benefited from new stores opened in FY2013: Fountain Gate (VIC) in September 2012; Townsville (QLD) in October 2012; and Shellharbour (NSW) in May 2013. However this was offset by the negative impact of the refurbishment of four of our top 25 stores: Adelaide (SA); Indooroopilly (QLD); Miranda (NSW); and Macquarie (NSW); as well as the closure of two stores, Dandenong (VIC) in October 2013, and Elizabeth (SA) in February 2014.
Cosmetics continued to be the top performing category driven by the excellent customer response to the introduction of leading make-up brand Napoleon Perdis in all stores and strong performances by M.A.C Cosmetics, Benefit, and Chanel. This was achieved despite ongoing price deflation in the category. Women’s Footwear and Handbags, Miss Shop (Youth) and Appliances also performed strongly.
Online sales growth of more than 100 percent and an increase in average online transaction value during the year were driven by greater customer engagement supported by an expansion of the online product range, enhanced product information, inspirational content, and significantly improved electronic direct marketing.
The continued growth in Myer Exclusive Brands was led by some of our large brands including Trent Nathan, Australian House & Garden and Miss Shop, re-launched brands such as Piper, and new brands such as Baker by Ted Baker.
Concession sales grew by 1.2 percent and now account for 15.6 percent of sales. There were strong performances from existing concession brands such as Marcs, R.M. Williams, Politix, and Sunglass Hut. There were a number of National Brands that performed well including Lego, Seafolly, Wish and Sass however these were offset by a disappointing performance in tablet sales as well as the continued rationalisation of audio-visual.
Margins and costs
The FY2014 EBIT result reflected a drop in operating gross profit and a previously flagged increase in the cash CODB.
The 57 basis point reduction in operating gross profit margin was predominantly driven by the impact of the depreciation of the Australian dollar on Myer Exclusive Brands as well as the increased investment in product development. The competitive nature of the market, particularly during the second half, restricted our ability to pass on these cost increases. Operating gross profit margin was also impacted by the strong customer response to loyalty initiatives such as MYER one bonus points promotions and bounce-back offers. Some of the impact on gross margin was recovered through a further reduction in shrinkage, improved sourcing, and where possible, adjustments to selling prices.
Cash CODB increased by 3.3 percent to $1,033 million.This increase partly reflects the annualisation of the transition of our store wages penalty structure in accordance with the Fair Work Act, as well as a targeted investment in additional store labour hours. Increased costs relating to occupancy (market rent reviews, annualised new store costs, outgoings, store closure and refurbishment costs), Myer Exclusive Brands initiatives, ongoing investment in delivering the omni-channel strategy, and space optimisation initiatives also contributed to the increase.
Depreciation, net finance costs and tax
Capital investments made in previous years as well as the impact from new and closed stores resulted in a 2.8 percent increase in depreciation to $92.3 million (FY2013: $89.8 million).
Despite the $33 million payment for the remaining 35 percent of the sass & bide business during the first half, the net interest expense reduced by 16.1 percent from $26.1 million to $21.9 million. This was predominantly due to lower interest rates, the ongoing benefit from the refinancing of our debt facilities in July 2013, and disciplined cash flow management.
The tax expense of $39.9 million represents an effective tax rate of 28.8 percent (FY2013: 30.0 percent). The lower tax rate was due to the impact of the full tax consolidation of sass & bide during the year.
Cash generation and working capital
The business continues to be highly cash generative despite a 12.3 percent reduction in operating cash flow to $263 million during the year (FY2013: $300 million). A working capital inflow of $10 million was underpinned by our disciplined focus on inventory management with inventory turns up and aged inventory down. These improvements reflect the continuing benefits of our significant investment in merchandise and point-of-sale systems.
Stock levels overall were up reflecting the earlier delivery of new stock and increased stock in transit to ensure the arrival of our new season range in stores coincided with the Spring/Summer 2014 fashion launch. Higher stock levels also reflected increased inventory being held ahead of new store openings. Pleasingly, inventory turns increased to 3.6 (FY2013: 3.4) and creditor days improved to 72 days (FY2013: 70).
Capital expenditure: investing to support future growth
As anticipated, gross capital expenditure increased by 13.0 percent to $87 million for the period (FY2013: $77 million) reflecting further significant investment in store refurbishments, new stores, omni-channel initiatives, and investment in enhancing the merchandise offer.
Balance sheet and dividend
Net debt finished the year slightly up at $348 million (FY2013: $340 million). Excluding the $33 million payment for the remaining 35 percent stake in sass & bide in September 2013, net debt would have dropped 7.3 percent to $315 million.
The Board has determined a final dividend of 5.5 cents per share taking the full year dividend to 14.5 cents per share fully franked (FY2013:18 cents). This represents a payout ratio of 86 percent, above the Board’s target dividend payout ratio of 70-80 percent of NPAT, reflecting the Board’s confidence in the outlook for the business in FY2015.
As we move into FY2015 we anticipate realising the benefits from recent investments and a number of strategic initiatives. We see this as a time of opportunity and will continue to invest to position Myer at the forefront of a rapidly changing retail environment.
The business anticipates delivering sales growth in FY2015 driven by:
- Full benefit of refurbished Adelaide (SA) and Indooroopilly (QLD) stores following completion of major refurbishments in May 2014 and June 2014 respectively as well as the opening of additional space at our Melbourne City (VIC) store in late May 2014;
- Opening of two new stores before Christmas, (Mt Gravatt (QLD) and Joondalup (WA)). This will be partly offset by the annualised impact of the Dandenong (VIC) and Elizabeth (SA) store closures and the closure of our Hurstville (NSW) store scheduled for early 2015;
- Completion of the remaining two major store refurbishments (Miranda (NSW) and Macquarie (NSW)) in part offset by a major refurbishment at our Warringah (NSW) store;
- Continued growth of the online business supported by enhanced customer experience achieved through improved website functionality, content, and lower-cost fulfilment, as well as a number of initiatives including ‘Click & Collect’ in all stores and the roll-out of 1,400 iPads to stores which provides customers with a significantly expanded product range;
- New partnerships with Australian designer brands such as Alex Perry, by Johnny, M.J. Bale as well as continued growth in sass & bide, Myer Exclusive Brands, and other national and international new brands; and
- Significant new Christmas merchandise and marketing strategies.
We anticipate modest growth in the operating gross profit margin driven by improved sourcing and the mix benefit from the growth in Myer Exclusive Brands, offset by lower average exchange rates.
We are committed to investing in the business in FY2015 and we anticipate the underlying cash cost of doing business will increase by approximately three percent.
We are also planning to invest between $35 and $50 million, dependent on business performance, to focus on:
- Accelerating the delivery of our omni-channel strategy;
- Investing in our people including enhanced training and development, strengthened leadership, performance-based reward and recognition, and increased frontline management in stores;
- Optimising the Myer Exclusive Brands strategy;
- Customer service innovation; and
- Refreshing the Myer brand.
These investments are important to delivering the operational improvements and capabilities required to underpin long-term, sustainable growth.
Strong cash generation is expected to strengthen our balance sheet and support capital investment in the business of approximately $80 million (gross).
The recent strengthening of the leadership team including the appointments of Daniel Bracken as Chief Merchandise and Marketing Officer, Richard Umbers as Chief Information and Supply Chain Officer, and Gary Williams as Executive General Manager Strategic Planning and Business Development is expected to contribute to the evolution of our strategy.
For further information please contact:
Davina Gunn, Myer Investor Relations Manager, +61 (0) 400 896 809
Olivia Reith, Myer Investor Relations Manager, +61 (0) 438 101 789
Amanda Buckley, General Manager Corporate Affairs, +61 (0) 438 101 081
Analyst and Investor briefing:
A briefing will be held for analysts and investors today at 10:00am (AEST time). This briefing will be webcast live at: http://streamcast.com.au/myer/FY2014/ Viewers will need to register their name, email and company to access the webcast. An archive webcast of the briefing will be available afterwards at: www.myer.com.au/investor