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Premier issues damning indictment of Myer’s “fudged” figures

Solomon Lew (right) and Premier CEO Mark McInnes
Solomon Lew (right) and Premier CEO Mark McInnes

Premier Investments chairman Solomon Lew has issued his second attack on Myer’s board in less than 24 hours, saying that its interim result is the “final nail” in the coffin for the department store and claiming it has “fudged” its figures.

Lew, who yesterday savaged Myer for “abandoning” its previously stated performance targets, has today issued an eleven-point criticism of the embattled business, which Premier holds a 10.8 per cent stake in.

Premier claimed that Myer “fudged” its figures by masking what it said “appears to be” ongoing costs as one-offs and opting not to write off the entire value of the of its struggling Sass & Bide brand.

“These so-called “one-offs” actually seem to be more of a constantly recurring feature of Myer’s mathematical gymnastics,” Premier said, referencing more than $80 million in above the line costs since 2H16.

“These appear to be ongoing costs of operating the Myer business, and if they were treated as such the underlying EBIT [earnings before interest and tax] for 1H 2018 would have been $48.3m, down 49% on last year,” Premier said.

Myer’s reported underlying EBIT for the first-half of FY18 declined by 34.9 per cent to $62 million.

The attack signals yet another intensification in Lew’s campaign to oust Myer’s board and nominate three of his own candidates at a possible extraordinary general meeting in the coming months.

Myer recorded a $462 million loss yesterday after writing down $515 million from the carrying value of its goodwill and brand name, as well as booking $14 million in one off costs.

Premier believes Myer’s second-half trading will worsen, claiming that yesterday’s figures and commentary from executive chairman Garry Hounsell indicate that it has lost control of its costs and is removing staff from stores.

Online growth jewel in the rough? Not according to Lew

While Myer spruiked a 48.9 per cent increase in online sales as a positive yesterday, Premier noted that its online growth actually halved in the second quarter.

“The stores-only sales for the half decreased by a consistent -5.8% across both quarters (or a total loss of sales of $100m) however, the bigger issue is that Myer went to some lengths to say that online was the “standout” for the half,” Premier said.

“However, the numbers released yesterday actually reveal that, far from being a “standout” for Myer, its online sales growth rate is dropping, and this is potentially the key driver of its most recent
downgrade. In fact, Myer’s rate of online sales growth halved between Q1 and Q2 of this financial year.”

Myer’s online growth in the first quarter was 67.8 per cent but was 35.9 per cent in the second quarter.

“Yesterday, Mr Hounsell said that Myer’s online performance was “the standout element of this result”. It may be standing out, but it’s nothing to be proud of, Mr Hounsell,” Premier said.

But Myer has disputed Lew’s calculations.

“Mr Lew has incorrectly grouped Myer’s online percentage growth with our omnichannel results,” a Myer spokesperson said.

In a market update on November 1 2017 Myer said that its omnichannel sales, which included the iPads, had increased by $48.4 million.

This is contrary to Premier’s statement today, which said online sales in the first quarter increased by 67.8 per cent to $48.4 million.

“Mr Lew has made some errors with his calculations today surrounding Myer’s online and omnichannel business. Myer’s omnichannel business includes online sales together with sales in-store on the 2,500 iPads,” the Myer spokesperson said.

“The facts speak for themselves, Myer’s online business continues to deliver impressive sales growth of 48.9%, on the back of a strong performance in 1H2017, and we are devoting additional resources to maximise its potential.”

“Stance on impairments is precarious”

Amid ongoing questions about whether Myer is at risk of breaching its lending covenants after its write down yesterday, Premier questioned whether Myer would need to incur another impairment.

“What we know is that as long as the market capitalisation of the company (circa $350m) remains lower than the balance sheet equity (circa $580m) there remains a risk of further impairments and issues on covenants,” Premier said.

Myer’s chief financial officer Nigel Chadwick moved to reassure the market yesterday, saying that auditors had been over the impairment “with a dose of salts” and were satisfied.

“We firmly believe there’s sufficient headroom to see us through to our next refinancing,” Chadwick said.

Myer executive chairman Garry Hounsell.
Myer executive chairman Garry Hounsell.

But Premier said that the headroom “looks very low” given that the second-half “looks increasingly like a loss”.

Myer has commenced renegotiations on its $420 million debt facility, which expires in August 2019.

UBS analysts said Myer is unlikely to breach is covenants in FY18, but FY19 risk has increased.

“In our view [a] risk of a breach in FY19 is high, unless a material improvement in Myer’s profitability is seen,” UBS analysts said.

In general, UBS analysts said there was “little in the way of positives” in the department store’s result yesterday.

“Myer stepped away from medium-term targets; the dividend was suspended; and, a c$515m pre-tax impairment was recorded,” UBS analysts said.

“We see limited evidence of trends turning in the short-medium term, with management clear that further investment (price, range, service) is required.”

UBS cut its FY18-20 EPS forecasts by 5-19 per cent.

Myer shares declined more than 4 per cent on Thursday to 40 cents.

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