SYDNEY (Reuters) - Top Australian department store chain Myer Holdings Ltd (MYR.AX) slumped to its biggest half-yearly loss since listing as it wrote off the value of its underperforming assets, conceding flawed execution of its strategy and an inadequate response to online competition.
The result provided ammunition for Myer’s biggest shareholder, billionaire retail investor Solomon Lew, who has been using his 10.7 percent stake to lobby smaller shareholders for support as he seeks to remove Myer’s entire board.
The loss, which was flagged a month earlier, also underscored the urgency for the 118-year-old retailer to convince investors it can flourish next to the likes of Amazon.com Inc (AMZN.O) and cheap brick-and-mortar fashion chains.
The company’s A$476.2 million ($366 million) net loss for the six months to Jan. 27 compared with a A$62.8 million net profit for the same period a year earlier, and prompted the Sydney-based firm to suspend its dividend.
“The results of the first half year were unsatisfactory and reflect a number of execution issues, including an appropriate response to aggressive competition prior to Christmas,” Executive Chairman Garry Hounsell said on a call with analysts.
Hounsell took the executive role when Chief Executive Officer Richard Umbers left the company unexpectedly a month ago. Amazon’s Australian arm began taking orders in December, Myer’s most important trading period in the lead-up to Christmas.
Lew has been critical of Hounsell, who has assumed responsibility for a 5-year turnaround plan, though his move to oust the board would need support from more than 50 percent of shareholders.
“Today’s result provided further evidence, if any was needed, that the Myer Board should be removed and replaced as soon as possible if the company has any hope of surviving” Lew said in a statement.
Myer’s second-largest shareholder, fund manager Investors Mutual Ltd, was unavailable for comment.
In Australia, Myer has become emblematic of the struggle of traditional department stores to adapt in an era where shopping online is becoming more of the norm, underscored by the success of tech titan Amazon. Moreover, consumers who want a wider product range in a shop are choosing well-resourced global rivals like H & M Hennes & Mauritz AB (HMb.ST).
Until now the Australian store has pursued a strategy of targeting “high value” customers too quickly, Hounsell said on Wednesday, although the firm would stick by its existing plan to minimize floorspace, cut rents and build up its online presence.
Online sales grew 49 percent in the six months to $105.2 million, he noted, although that was a fraction of its total sales, which fell 3.6 percent to A$1.7 billion. Same store sales also declined 3 percent.
Excluding a non-cash impairment charge of A$500.2 million, Myer said its underlying half-yearly profit came in at A$40.1 million, within the range of its most recent guidance.
Myer shares were down 2 percent at 42 Australian cents in mid-afternoon, hovering near record-lows it has traded at in recent months following three profit downgrades. The shares were issued at A$4.10 in 2009 and have never traded above that level.
“It’s just too big, it’s got too many stores, they’re too large, their merchandise isn’t compelling, it’s in the middle of a women’s apparel downturn,” said David Walker, a senior analyst at Clime Asset Management, which does not own Myer shares.
“I think it will continue to struggle along for the time being. I can’t see how it turns around.”
Reporting by Aditya Soni in Bengaluru; Editing Richard Pullin & Shri Navaratnam