Green shoots in Myer results
At first blush the headline result from Myer looks horrible - down 19.8 per cent after tax for the first half of 2012.
Make no mistake it’s still a bad result. But the reason the share price responded positively is that it contained some of the those elusive greens shoots - early signs that the consumer may be starting to come out of hibernation.
The other positive it that numbers and commentary coming out of Myer suggest that it is finding ways adapt to the tougher retail environment.
In the first instance, Myer chief Bernie Brookes reckons he will meet his profit target of a 10 per cent fall in profit for the full 2012 year.
How is this a good thing?
Because if the first half is down near 20 per cent the second half will need to be pretty good to claw back the yearly decline to only 10 per cent.
The second positive piece of news is that the sales are for the year are predicted to be at best flat.
Again this is a better outcome than many discretionary retailers have been experiencing over the past 18 months.
Brookes said that the overall sales were down by 1.7 per cent in the first half and by only 0.4 per cent in the second quarter, which suggests a positive sales trend and one that has been holding since January.
One of the key reasons for the improvement in gross profit margin was Myer’s decision to curb some of the heavy discounting which was a feature of last year’s retail environment. (Others like David Jones are also imposing limits on discounting.)
Another emerging buzz in retail is the management of shrinkage. In Myer’s case surveillance technology has put it near world’s best practice of just 1 per cent lost to shoplifters.
There are a number of other ways that Myer is better keeping its costs down. Sourcing of its product is certainly a big one and so is its push into store exclusive brands - a trick it learned from David Jones.
It is also moving out of low demand/margin products (like video games and DVDs) and reallocating some space to more popular higher margin product like apparel.
Against this it has headwinds of some higher staff costs, thanks to new enterprise bargaining agreements and additional service staff.
The fact that the market can be impressed by a sluggish result reflects just how dire the retail market is. It has certainly set a benchmark for the several larger retailers due to report over the next couple of weeks.