MYER'S July-year profit conformed with this year's general earnings season template, and chief executive Bernie Brookes' refusal to say what the retailer is likely to earn in the new financial year conformed, too.
June-year profit results were in the main as good or better than expected - on the final count, 43 per cent beat Goldman Sachs' profit estimates and only 20 per cent fell short, for example, the best performance since the global crisis erupted. Guidance for the new financial year was weak to non-existent, however: Goldman analysts downgraded current year earnings estimates for 48 per cent of the companies they cover.
Myer predicted a July-year profit decline of no more than 10 per cent until May 23 this year, and then responded to tough trading conditions by downgrading its guidance to a potential drop in earnings of up to 15 per cent.
It announced a 14.3 per cent profit decline yesterday, and said that it had been posting sales gains since the end of its third quarter. There was no guidance given for the new financial year, and while the market reacted negatively to that, the reality is that everyone is in the same big binary boat.
Central banks and political leaders in Europe, the US and China will either head off a resumption of the global crisis that would begin with a meltdown of some kind in Europe, or they will not. The markets will either tank if the crisis flares, or they will grind upward as crisis is averted, and the tedious process of debt deleveraging in Europe and the US continues. Business and household consumers will either shelter from the storm or emerge from their bunkers early next year, blink in the daylight, and start spending more.
The signs that Europe's cot cases will be given the oxygen they need to repair themselves are growing as European Central Bank President Mario Draghi's ''do what it takes'' plan takes shape, and the odds on a continuing ''risk off'' market rally are improving. Decisions the US Federal Reserve announces this morning after its two-day meeting are the next markers on that road.
Where it all goes is not yet entirely clear, however, and guidance from companies will be guarded until it is. In the meantime, they are adjusting to life where top-line revenue growth is slow, by focusing on their cost of doing business. It is a cost-out world, for just about everyone: Myer, its retail competitors, the banks, manufacturers, and the miners too, since commodity price falls began to outstrip volume increases.
All the miners including BHP and Rio are looking to cut costs and preserve cash, but Fortescue Metals Group's 14 per cent share-price nosedive late yesterday on news that the iron ore miner is asking its banks to ignore potential debt covenant breaches underlines that highly geared companies are most exposed to top-line revenue erosion.
If Fortescue breaches its covenants it will need waivers to continue to draw down funds, and would have to consider a deeply discounted share issue if drawdowns are interrupted. Negotiations with the banks also complicate Bank of America Merrill Lynch's attempt to syndicate a two-part $1.5 billion debt facility it underwrote for Fortescue at the beginning of August.
Brookes is certainly sweating his retail assets. Myer's sales were down 2 per cent on a same-store basis to $3.1 billion in the July year, but operating gross profit rose by 1.3 per cent to $1.29 billion, and by 3.7 per cent in the second half, as Myer stopped selling low-margin merchandise and shifted selling space and resources to higher-margin lines including its ''Myer-Exclusive'' brands. Exclusive brands sales rose 5.5 per cent during the year, and their share of total sales increased from 17.6 per cent to 19 per cent.
Brookes spent $26 million during the year to boost service levels on the shop floor, and pointed out yesterday that the additional spend on ''customer-facing wages'' was basically the same as the drop in net profit, from $163 million to $139.3 million.
It was not an optional outlay, however. Like all big retailers, Myer is building an online presence, but even after doubling in 2011-12, Myer's online sales represent less than 1 per cent of total revenue.
Brookes admitted yesterday that the Australian retailers were late movers online.
He says, however, that online sales growth is accelerating as Myer brings its online sites up to speed and boosts its hit and click inventory. The number of items available for sale online has doubled to 30,000 in the past month as part of a site relaunch, and Brookes says the plan to boost online sales to 10 per cent of total sales in five years is unchanged.
Online needs, however, to be not only a business in its own right, but one that is integrated with the bricks and mortar. The bricks and mortar stores will become lower-volume, higher-margin and more service-intensive businesses over the longer term as that occurs, and service intensity will need to rise.
One thing for investors to watch is whether growth in sales from here on pressures Myer's profitability.
The retailer's cost of doing business rose 4.6 per cent during the year, and its profit before interest and tax was down from 8.2¢ in the sales dollar to 7.4¢. That is acceptable while Brookes is spending money to establish the new hybrid selling platform, but in the medium term those ratios need to recover: a resumption of stronger consumer demand would be a welcome assist, but it is not something the retailers themselves can deliver.