Myer Holdings Ltd Stock Plunges to 10-Month Low After Weak Earnings

Supply Chain Woes and Tough Retail Market Hit Profits Hard

Myer Holdings Ltd (ASX:MYR) shares recently tumbled to a 10-month low of $0.68, marking a sharp 10.5% decline, as the Australian department store chain grappled with disappointing half-year earnings. Investors reacted swiftly to the news of a profit drop, driven by persistent supply chain disruptions and a challenging retail environment that overshadowed modest gains in online and comparable sales. The company reported a net profit after tax of $42.4 million for the 26 weeks ending January 25, 2025, a significant decrease from the $52.0 million recorded a year earlier, highlighting the mounting pressures on one of Australia’s iconic retail brands.

The financial strain largely stemmed from operational inefficiencies at Myer’s National Distribution Centre, which management estimated cost the company $12 million in earnings before interest and taxes. These disruptions led to stock shortages and elevated fulfillment expenses, directly eroding profitability. Total sales remained virtually unchanged at $1.83 billion, with group comparable sales edging up by a modest 0.8%. Meanwhile, online sales showed resilience, rising 4.8% to $409 million and accounting for 22.3% of total revenue. Despite these pockets of growth, the operating gross profit margin slipped by 53 basis points to 35.8%, reflecting a shift toward concession sales and increased promotional activity to drive customer traffic in a competitive market. Adding to the woes, employee costs climbed due to enterprise bargaining agreements and superannuation adjustments, pushing the cost of doing business up by 1.9% to $457.8 million. This combination of factors painted a grim picture for Myer Holdings Ltd’s stock performance, sending shares to their lowest level since May 21, 2024.

Beyond the immediate financials, a strategic bright spot emerged with the recently approved merger between Myer Holdings Ltd and Premier Investments’ Apparel Brands. This transformative deal, valued at $864 million, integrates popular labels like Just Jeans, Jay Jays, Portmans, Dotti, and Jacqui E into Myer’s portfolio, creating a retail powerhouse with over 780 stores across Australia and New Zealand. Shareholders overwhelmingly supported the merger, with 96.2% of Myer investors and 99.96% of Premier Investments investors voting in favor. As part of the agreement, Myer will issue 890.5 million new shares to Premier, which will also inject $82 million in cash into the combined entity. This move is poised to bolster Myer’s long-term growth prospects by diversifying its revenue streams and enhancing its market resilience, offering a potential counterbalance to the current operational challenges. Solomon Lew, chairman of Premier Investments, will join Myer’s board, signaling a deeper strategic alignment aimed at revitalizing the department store chain’s fortunes.

Digging deeper into Myer Holdings Ltd’s half-year financial results reveals a nuanced story of resilience amid adversity. The statutory net profit after tax stood at $30.4 million, further impacted by $14.1 million in implementation costs tied to strategic initiatives, including the merger. The company declared a fully franked dividend of 2.5 cents per share, a gesture to maintain investor confidence despite the profit decline. However, the broader retail landscape in Australia remains unforgiving, with store closures like those in Brisbane and Werribee, alongside ten standalone sass & bide locations, weighing on comparable sales growth. Management acknowledged these headwinds during the earnings call, pointing to a tough macro environment that has squeezed consumer spending and intensified competition among retailers vying for market share.

For investors tracking Myer Holdings Ltd’s stock price trends, the recent plunge underscores the urgency of addressing supply chain bottlenecks, particularly at the National Distribution Centre. The $12 million hit to earnings from these inefficiencies highlights a critical vulnerability that must be resolved to restore profitability. Yet, the merger with Apparel Brands offers a compelling narrative of renewal, potentially positioning Myer as a more diversified and robust player in the retail sector. Analyst perspectives remain mixed, with price targets ranging from $0.75 to $1.18 according to platforms like TradingView, reflecting cautious optimism tempered by uncertainty over near-term execution. The stock has shown signs of recovery, trading around $0.75 as of the latest updates, suggesting that some investors see value in the strategic pivot despite the earnings setback.

Myer Holdings Ltd’s journey forward will hinge on its ability to streamline operations and capitalize on the synergies from the Apparel Brands merger. The growth in online sales, now a substantial 22.3% of revenue, demonstrates the company’s adaptability to shifting consumer preferences, a trend likely to persist as e-commerce continues to reshape retail dynamics. However, the pressures of rising costs, promotional reliance, and a sluggish retail environment demand a disciplined approach to cost management and operational efficiency. For stakeholders, the interplay between these immediate challenges and the long-term potential of the merger will shape Myer’s stock performance in the months ahead, making it a closely watched case study in retail transformation.