Myer dresses down for a long, bleak winter: Bartholomeusz

Myer’s third-quarter sales results, and its earnings downgrade, underscore how much the retail sector needed this month’s 50 basis point cut to official interest rates and beg the question of why the Reserve Bank didn’t move a little earlier.

The faint hope for retailers being ground down by the anxiety of consumers is that the cut – most of which has flowed through to home loan rates despite the retention of some of the 50 basis points by the banks – is that it helps stem the continuing erosion in their sales bases and margins.

With daily headlines of large-scale job losses, sliding house prices, volatile stock markets, the continuing turmoil in Europe, a dollar that remains strong and the widely-held perception that government is dysfunctional, however, it may take more than one rate cut to alter the mood of consumers.

The Myer third-quarter numbers weren’t all that bad, given the circumstances. Total sales, once the categories Myer has exited or shrunk are taken out, were down 0.2%, or 1.6% on a like-for-like basis.

The commentary around the numbers, however, was somewhat more disconcerting. Myer described the third quarter experience as “mixed”, but said there had been a significant deterioration in April, which had continued into the first few weeks of its final quarter.

It is no surprise that Myer’s best-performing states were Western Australia, South Australia and Queensland or that its poorest-performing states were Victoria and New South Wales, which have been hit hardest by the impact of the dollar and the collapse in consumer confidence on their industries.

The ongoing pressure on its sales and margins in a recessed and extremely competitive environment led Myer to downgrade its full-year earnings guidance from “no worse than 10% below” last year’s $162.7 million profit to “no worse than 15%” below that outcome.

Earlier this year David Jones shocked the market when it unveiled a 19.6% decline in first-half earnings and foreshadowed a full-year slump in earnings of between 35% and 40%. The Myer commentary will inevitably create further concerns about its major rivals’ condition and, indeed, the outlook for the discount department stores and specialty retail sectors generally.

At least Myer has reduced its exposure to the segments most exposed to the downturn and price deflation – electrical goods, DVDs, music and the like – which have affected businesses like JB Hi-Fi, Dick Smith, Harvey Norman and Retravision most severely.