Company Reports

Talk of interest rate cuts and impending tax cuts is sparking a rally in consumer cyclicals. We agree these factors improve the near-term outlook for consumer spending, with cyclical retailers more exposed. We expect the combined impact of fiscal and monetary tailwinds to underpin mid-single-digit growth in total retailing sales in the medium term—compared with our estimate of only 2% growth in fiscal 2024. But underlying our near-term forecast is a significant divergence across categories, with sales in cyclicals virtually flat and defensives up 4%.

No-moat Myer’s first-half fiscal 2024 sales of AUD 1.8 billion and adjusted net profit after tax of AUD 52 million were in line with guidance from February 2024. The board declared an interim dividend of AUD 0.03 per share, fully franked, representing a 48% payout ratio.

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

No-moat Myer’s underlying sales momentum improved slightly despite the cost-of-living crunch. Consumers are keeping spending up by saving much less than usual. However, we expect high demand levels for fashion items to normalize as the postpandemic boom peters out and the savings rate starts to creep up again. Both factors are formidable headwinds for consumer discretionary spending and Myer’s sales outlook. Despite marginally lifting our fiscal 2024 sales and earnings estimates, our fair value stands at AUD 0.75, close to current share prices.

E-commerce platforms have been outperforming physical stores recently. Transaction data from National Australia Bank suggests online retail sales in October lifted 10% on last year, while total retail trade was up only 1%, as reported by the Australian Bureau of Statistics.

We expect only modest discretionary goods sales growth in fiscal 2024, while interest rates stay high and household incomes struggle to keep up with inflation. With demand soft, discounts and promotions abound in discretionary retail, and with wages rising as well, earnings are under pressure. But for some, cost pressures are easing. Steep declines in global food commodity prices bode well for fast-food restaurants. Quick service restaurant operator no-moat Collins Foods and master franchisee narrow-moat Domino’s Pizza screen as undervalued.

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

We maintain our AUD 0.75 per share fair value estimate for no-moat Myer. Sales of AUD 3.4 billion had already been earmarked in August 2023, and adjusted net income of AUD 71 million was in the middle of the guidance range, up 18% on last year and in line with our estimate. The board declared a final dividend of AUD 1 cent per share, bringing total fiscal 2023 dividends to AUD 9 cents, including AUD 4 cent interim and AUD 4 cent special dividend. At current prices, Myer screens as undervalued. We think the market is more concerned about the uncertain near-term trading outlook, given the recent earnings volatility.

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

We maintain our AUD 0.70 per-share fair value estimate for no-moat Myer. The department store’s result for fiscal 2022 was at the top of the narrow guidance range provided in July 2022 and in line with our estimate. Adjusted net profit after tax of AUD 47 million tripled against fiscal 2021. We treat rent waivers that Myer received from landlords in relation to temporary store closures as one-offs.

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).