Myer Won’t Bribe Customers

What happened to Myer’s Share Price?

Shares of Myer Holdings Ltd. [ASX:MYR] gained over 5.50% today.

Why were Myer shares so volatile?

Yesterday Myers announced its half year results. Even though the company reported great sales during spring racing and Christmas, January and February were disappointing.

Shares crashed yesterday from $1.14 to $1.08 but rebounded back today — to 1.135 at time of writing — after Myers’ CEO Richard Umbers vowed to give Amazon a good fight.

Sales during the first two months of the year slumped because Myers refuses to engage in heavy discounting, like their competition. The company does not believe it is a sustainable strategy that promotes growth. As Umbers told the Sydney Morning Herald, ‘We want it to be based on product we sell at full price, not bribing everyone to come in with a massive discount sale.

Yet even with declining sales during the first quarter, profitability was up. The company declared a 5.3% increase in net profits after tax to $62.8 million.

The fact is, the retail market environment is now very competitive. New entrants like H&M, Gap, Daiso and Zara are disrupting the scene, and it will only get worse once Amazon enters Australia next September.

Myers is 18 months into their five year transformation. Their goal is to deliver wanted brands, enhance customer service and improve productivity.

Myers announced a half year dividend of 3 cents per share payable on 4 May.

What now for Myer Holdings?

Sales in January and February were below expectations, but Umbers expects that the full year results will exceed last year’s profits. Umbers has promised to cut on discounting, to protect margins.

Yet there is a lot of uncertainty in the retail arena, as there is the fear that Amazon will destroy traditional Australian retailers.

By Selva Freigedo

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Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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