Myer and Nick Scali flag lower profits, but investors are cheering

Myer and Nick Scali’s latest sales figures have lifted expectations and injected fresh hope among investors and analysts that Australian consumers are still keen to open their wallets despite the ongoing pressure of the cost-of-living crisis on household budgets.

Both the department store and the furniture retailer’s shares soared by double digits on Tuesday, despite what at first glance seemed like sobering numbers: Myer predicted a 3 per cent dip in sales and Nick Scali forecast a 29 per cent hit to net profit for the first half of the 2024 financial year.

Myer’s trading update on the first half of the 2024 financial year was pleasing to investors.
Myer’s trading update on the first half of the 2024 financial year was pleasing to investors.Credit: Natalie Boog

Myer said in a statement to the ASX on Tuesday it now expects net profit to land somewhere around $49 million to $53 million – a sizeable drop from its 2023 half-year profits of $65 million this time last year.

Wilson Asset Management lead portfolio manager Oscar Oberg said last year’s figures were boosted by shopper exuberance after the end of lockdowns and their eagerness to be out and about again – a very different economic environment to the present, which has caused analysts to slash expectations of retailers over darkening consumer sentiment.

“Starting from around January last year, clearly a lot of the interest rate increases and inflation started to bite the consumer. What we saw was that analysts heavily discounted earnings forecasts […] for most of the retail sector,” Oberg said.

“I think it’s a simple case of the results are not as bad as people thought.”

‘I think it’s a simple case of the results are not as bad as people thought.’

Wilson Asset Management’s Oscar Oberg

Oberg said retail analysts were forecasting that Myer would notch $51 million in profits for the entire year, which its half-year results will nearly reach or surpass.

“The expectations were low, and it’s better than what the market had thought. More importantly, the valuations are very cheap,” he explained.

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The department store’s share price shot up nearly 17 per cent in afternoon trading to 77.7 cents.

An executive reshuffle is well under way at Myer: former Qantas loyalty boss Olivia Wirth and veteran corporate raider Gary Weiss joined the board at its annual general meeting in November, during which long-standing chair JoAnne Stephenson retired, to be replaced by businessman and board director Ari Mervis. Chief executive officer John King and chief financial officer Nigel Chadwick are set to leave the company this year.

Oberg noted there had been some speculation that retail heavyweight Mark McInnes, the former boss of David Jones and then CEO of Solomon Lew’s Premier Investments, could be a candidate for the position of Myer chief executive before it was revealed he had joined self-made billionaire Brett Blundy’s $3 billion empire.

The next chief executive for Myer should be focused on maintaining management’s focus on cost savings as well as bring a greater focus on boosting sales, Oberg said.

ASX-listed furniture retailer Nick Scali’s share price soared on Tuesday.
ASX-listed furniture retailer Nick Scali’s share price soared on Tuesday.

It was the same relief over beaten expectations that drove the 16 per cent jump in Nick Scali’s share price after the furniture retailer reported half-year net profit of $43 million, beating its own forecast of $40 million to $42 million.

“Clearly the start to the year has been better than what people thought,” said Oberg.

Some nine months ago, company analysts slashed expectations for retailers amid interest rate hikes, but Oberg said those numbers now appeared too pessimistic. Wilson Asset Management expects other retailers such as Harvey Norman and Premier to also report stronger-than-expected half-year figures.

Nick Scali, which acquired sofa chain Plush in late 2021, will this year seek to press on with its store rollout, but is contending with limited site availability and high rents. It has 64 Nick Scali stores and 44 Plush stores, with ambitions to open dozens more of both brands across Australia and New Zealand.

A new Nick Scali store will open in Sydney’s north this year, chief executive Anthony Scali said in a call with investors on Tuesday.

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Source: Thanks smh.com