Myer Holdings Limited (ASX: MYR)

Decline in Sales - Myer is Australia’s largest full line department store group, with more than 60 stores in prime retail locations across Australia. Premier Investments continues to be engaged in a hostile and obstructive campaign that appears to be designed to destabilise Myer. Meanwhile, Credit Suisse Holdings (Australia) Ltd changed its substantial holding from 5.05 per cent to 6.39 per cent from 28 May 2018. On the other hand, Richard Amos, Chief General Counsel and Company Secretary, has resigned and will leave the business at the end of July 2018. The Company also announced the appointment of Jonathan Garland as Company Secretary with effect from July 2018. Its strategy now aims to deliver a fresh interpretation of its brand, a re-energised and relevant range, improved service and in-store experiences complemented by a strong omni-channel offer. Lately, the Group announced a renewed focus on product, price and customer service, which delivered encouraging results during March 2018. The continued strong performance in its online business is pleasing and it will continue to invest in growing this business. Group’s total sales for Q3FY18 for 13 weeks ending on 28 April 2018 were down by 2.7 per cent on a comparable store basis and amounted to $635.3 million. This was better than what market expected from the group. While the market was expecting a drop in sales of about 5 per cent, the group has capped the fall up to 2.7 per cent only. 

Total year to date sales of $2,355.0 million fell short by 3.4 per cent, 3.0 per cent on a comparablestore basis; however, online sales year to date were up 49 per cent to $141.1 million. It is currently considering to establishing separate business units for the Myer One and Myer Online businesses. By adopting a more single-minded approach, the Group believes that it will be able to drive these assets in a better manner. However, there is no doubt that there is significant longer-term potential to leverage these assets to support initiatives outside the core retailing business. The share price has been falling in the past one year and was down by 52 per cent and slipped by 6.67 per cent in last five days. The Company has faced a significant short interest rise. We recommend to “Hold” the stock at the current market price of $0.42 by looking at the downfall in the share price and short-interest which has been on the rise.
 

Retail Food Group Limited (ASX: RFG)

Update on FY18 Earnings Guidance - Retail Food Group Limited, a food and beverage company, slipped by 2.6 per cent on 05 June 2018 after it released an update in relation to its expected FY18 earnings. The Group expects FY18 underlying NPAT to be approximately $34.5 million and statutory NPAT to be a loss of approximately $87.6 million, taking account of the substantial impairment charges booked at 31 December 2017. Thus, there is about 54% drop in underlying net profit. The expected FY18 NPAT does not include $3.0 million of anticipated international licence fee revenues that may occur before the year-end but are sufficiently uncertain to be included at this date, nor any potential accounting impairment adjustments that may be made as the year-end accounts are being completed. The statutory FY18 NPAT figure is also impacted by termination payments to former Managing Director, Andre Nell, and other additional one-off turnaround expenses. The Group also continues to maintain a dialogue with its bankers and their advisers with regards to its expected FY18 result and forecast FY19 result.
 

Sales Trend (Source: Company Reports)

Trading performance has continued to be impacted by a combination of previously noted persistent difficult retail market conditions, the cumulative impact of planned domestic outlet closures, and ongoing negative sentiment regarding both retail franchising and RFG in particular. The Group will provide a detailed market update with the FY18 results announcement in August 2018. On the other hand, the embattled group that lost its momentum in the past few months was otherwise seen to witness return on equity (ROE) on an average of 13.38 per cent over the last five years up till FY17.The Group has witnessed an improvement in terms of reducing franchisees cost of goods, renewal and new store fees, and is working with franchisees to pilot innovative new store concepts. The stock was down by 39.77 per cent in last three months and by 7.69 in last five days. We maintain our “Hold” recommendation on the stock at the current market price of $0.76, while earnings are under pressure.

 
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