Another mixed day for Asian markets?
City Index May 23, 2012 5:10 PM
<p>Asian markets may be in for another mixed trading day today following weak leads from the US overnight. The economic situation in Europe is still […]</p>
Asian markets may be in for another mixed trading day today following weak leads from the US overnight. The economic situation in Europe is still front of mind with investors, who remain cautious overall.
In Australia, retailer Myer has no doubt downgraded its earnings outlook for the full financial year, saying it now anticipates net profit to be no worse than 15% below last year. This compares with prior guidance for earnings to have been no worse than 10%.
When Myer reported its earnings in March we said, based on management’s wording, that the door was open for more downside to earnings. That opportunity has now been exploited.
Comparable sales continue to fall, down 2.1% on a comparable basis for the quarter. Last year’s two 25-basis point rate cuts don’t seem to have worked and spending fell away heavily in April, in line with what other retailers have been telling us.
New South Wales and Victoria have continued to drag down an otherwise reasonable result by Western Australia, South Australia and Queensland.
Myer’s failure to lift comparable sales growth is, we think, the primary issue. Comparable sales numbers aren’t exactly coming off a high base. The business has continued to struggle with its sales metrics ever since listing.
There needs to be a significant game changer and one sooner rather than later for the market to start pricing in some trust. Myer also doesn’t enjoy the financial services and credit card fees which David Jones books through its American Express agreement, even though that fee revenue is set to fall for David Jones.
Bottom line: A retailer cannot grow earnings over the medium to long term without growing its sales. Comparable growth for Myer continues to be negative and it seems like operating costs have been cut to the bone.
The money spent on acquiring Sass & Bide last year would have probably been better spent on boosting online capabilities. The falling Australian dollar could see less deflationary pressure, particularly in apparel, should fragmented importers who often don’t have hedging like the major retailers, pull out of the market.
The recent 50 basis point cuts in interest rate, carbon tax money, school bonus payments and tax cuts are all due to flow over the next few months and might boost earnings, but it’s not enough to earn back market trust until Myer can convince the market of its medium to long term plans to boost sales. We prefer other listed retailers.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.