Myer shares plummet after sales slump as JB Hi-Fi profit jumps 15%

Retail giants Myer and JB Hi-Fi have both warned retail conditions will remain volatile in the next six months as consumers hold on to their cash in light of higher interest rates and the impact of the Government’s new flood levy.

However, both companies have produced wildly different results for the first half of the year – while JB Hi-Fi recorded sales growth of 8.3% and profit growth of 15.6% to $87.9 million in the six months to 31 December, Myer sales were down by 3.54% to $1.79 billion in the six months to January 29.

The announcement has sent Myer’s shares plummeting over 12% this morning to a seven-month low of $3.28.

Myer also confirmed long-awaited reports that it has bought a stake in fashion label Sass & Bide for $42 million.

The result highlights how differently the two companies operate, and their respective strategies for dealing with rampant discounts and deflation.

Myer said that its profit could be as much as 5% lower than last year, with chief executive Bernie Brookes saying that consumer confidence and high competition from continued discounts are hurting the company.

“A likely continuation of the increased costs of living together with the widely anticipated flood levy and food inflation are expected to put pressure on discretionary spend during the remainder of calendar 2011,” he said.

Brookes added that higher costs of living for items like health care and petrol will also be exacerbated by higher rate rises.

“We, like other discretionary retailers, have observed a consumer that is more cautious to spend and has an increasing tendency to save.”

Myer’s sales for the six months to January 29 were down by 3.54% to $1.7 billion, compared to the previous corresponding period. But on a like-for-like basis the results were much worse, with sales down 5.19%.

Brookes points to several factors including the November rate hike, huge discounts in the lead up to Christmas and a rapid decline in January sales – a trend Brookes says is due to the wet weather, leaving summer clothing on the shelves.

“From late December, there was a deterioration in trading across Queensland, New South Wales and Victoria as a result of the devastating floods,” Brookes said.

Continued discounts are also hurting the company, and sales during the first half were impacted by the company’s decision to exist the whitegoods business, Brookes said.

And while Myer predicted last year net profit after tax would grow between 5-10% for the full year, it now said 2011 full year NPAT could be up to 5% less than last year. In fact, the company says the current environment is so unpredictable, given the impact of the upcoming flood levy is still unknown that it will update the market on March 17.

“We are well positioned to benefit from any improvement in trading conditions and consumer sentiment,” Brookes said, pointing to the opening of 13 new stores in the next four years, along with the refurbishment of the Melbourne store.

Brookes also said the company will continue focusing on its website, which now enables buyers to shop for goods online. Myer has promised better functionality and navigation.

Meanwhile, while JB Hi-Fi chief executive Terry Smart has confirmed that the current retail environment is indeed “volatile and competitive”, the company has still delivered a stellar result of NPAT up 15.6% to $87.9 million.

And as a salute to the growing power of online retail, JB Hi-Fi noted digital sales were up by 35% in the first half.

Total sales were up by 8.3% to $1.68 billion, although Smart said comparable store sales growth for the period was down by 1.5%. However, the gross margin was up from 21.1% to 21.5%, thanks to inventory management and a merchandising strategy “focused on margin generating products”, with the cost of doing business remained steady at 13.2%.

“Sales since the start of January have remained tight as high levels of discounting and the impact of price deflation continued,” Smart said in a statement, adding that “we anticipate a volatile and competitive market in the second half”.

JB Hi-Fi is facing a lot of pressure – prices for its already discounted products are being brought down further by competition and deflation in flat panels caused the company to record negative comparable sales for that category.

However, JB Hi-Fi’s success can be attributed to its long-held position as a “discount” retailer. With shoppers looking for bargains, the company’s appearance as a type of warehouse outlet has continued to serve it well.

Strong cost control, inventory management and diversification into new areas such as laptops and mobile phones has helped the company grow.

Consumer electronics comparable sales growth was 4.4%, the company said, with “strong growth in computers and telco”.

Looking ahead, Smart says the company will record sales of around $3 billion for the full year, and NPAT growth of between 13-17% to $134-139 million.

JB opened 13 stores during the first half of the year, with five more planned for the second half. It expects these new locations to deliver “solid revenue and earnings growth”.