Competitive pressure on Myer could be too much for share price says analyst

By

Sandra Halliday

Published
May 9, 2017

Australian retail giant Myer has seen its share price moving downwards this week as it gears up for its Q3 sales report, with it hitting a price less than half of what it was five years ago.

It closed Tuesday at A$0.98 as analysts speculated that the move of more foreign retailers into its domestic market could seriously undermine the department stores business.

The biggest catalyst for the shares falling was a new investment report from credit Suisse. Credit Suisse analyst Grant Saligari said there are too many stores in its estate, it is seeing falling discretionary spend, and facing the arrival of TK Maxx and Amazon in Australia, all of which is “likely to be all too much for Myer.”

The share price fall comes after Australian retail entrepreneur Solomon Lew spent A$101.7m to scoop up a 10.7% stake at a higher per-share price during March. He bought the stake through his Premier Investments vehicle and is the firm’s biggest shareholder.

Credit Suisse’s Saligari said the firm’s top executive Richard Umbers is doing the right things in his programme of boosting online sales, closing under-performing stores and tweaking the brand mix. But he believes that “the starting point might be just too difficult, with the recent acceleration in competition.”

He believes Myer shares could be trading at A$0.88 within a year but also said if a takeover offer emerged, he would be more optimistic on the share price.

There is still speculation that Solomon Lew could launch a takeover bid, although Saligari did not say whether he thought the retailer would perform any better under a new owner.

Myer releases its Q3 sales report this week with Credit Suisse currently forecasting that the full year will see a 15% net profits fall, plus a 27% drop next year and a 33% plunge the year after. It also expects comparable sales to fall 1% in both Q3 and Q4.