Myer shares are soaring after the department store chain cut its debt by a third and posted a $38.4 million first-half profit.
The department store still has $95.4 million in debt but, barring an unforeseen disaster, it appears Myer is no longer in danger of breaching its covenants with lenders.
Myer trimmed its net debt by $57 million over the 26 weeks to January 26 and it had a net cash position of $37 million at the end of the reporting period, compared to net debt position of $107.4 million in FY18.
“We are very comfortable with our financial position,” chief financial officer Nigel Chadwick said.
“We feel this is a small step in the right direction, but we are highly conscious the heavy lifting is still ahead of us.”
Myer shares – which were worth $3.05 in April 2015 before dropping 90 per cent over five years – were up 5.0 cents, or 12.2 per cent, to 46 cents at 1215 AEDT.
“I thought it was a reasonable result,” said Philip Pepe, a senior analyst with Blue Ocean Equities in Sydney.
“The new management team seems to be doing a good job. I look at cashflow, and cashflow was up.”
The team also seems to be correctly focused on growing profits rather than boosting sales, Mr Pepe said.
Myer is now looking to reduce store sizes and improve its online offerings with a centralised distribution centre and more products.
“We think we can have smaller stores, more profitable stores, but online is what is going to knock it out of the park,” chief executive John King said.
“We had been a bit adrift for a few years, not focusing on what we should be doing, on fantastic customer service.”
Myer closed its store in Logan, Queensland, in January and one in Adelaide’s Colonnades shopping centre a year ago, but executives indicated further closures were not on the agenda.
All bar one of its stores turned a profit over the half. Including depreciation, two or three were in the red.
Instead Myer is keen to shrink stores like it did in Cairns, giving up the top and bottom floor of its four-storey footprint in exchange for lower rents.
Executives negotiating with landlords as they look to reduce Myer’s total store footprint by 30,000 square metres this year.
Shrinkage – loss of stock from shoplifting and employee theft – was also a problem executives said they will focus on, as it accounted for 1.4 per cent of all sales.
MYER’S FIRST HALF
* Net profit $38.4m v $476.2m loss in pcp
* Sales down 2.8pct to $1.671b
* No interim dividend