Myer expects 2012 profit to fall 10% as “extremely challenging” trading continues

Department store giant Myer has said it expects sales to remain flat and for net profit to fall 10% in the next year as it faces an “extremely challenging” retail environment, as it revealed its full-year financial results.

The announcement comes as a number of analysts have cut expectations for retail shares over the next year as consumer confidence remains weak, and note that Myer isn’t driving earnings growth through managing costs, rather than sales.

“Myer’s full-year profit result ticks some boxes but also leaves many questions unanswered,” City Index chief market analyst Peter Esho told The Australian.

“Digging under the bonnet, sales continue to decline and earnings are largely driven by cost management – a strategy which is not sustainable over the medium- to long-term in retail.”

Myer has spied a further $48 million in new costs over the year as well, associated with higher wages and store occupancies, although it said the cost of doing business fell by 3.4% to $933.7 million.

The company announced a net profit of $162.7 million for the year, 3.5% down from the $168.7 million recorded last year, although in line with expectations. Revenue sales fell 5% to $3.1 billion, while sales fell on a like-for-like basis by 5.5%.

Excluding the electrical division, total sales were down by 1.2%.

“Although the retail environment remains extremely challenging, our flexible and sustainable business model developed since 2006 will continue to help us meet these challenges,” the company said in a statement.

“Assuming trading conditions do not deteriorate further, we anticipate FY2012 sales to be flat and NPAT to be up to 10% below FY2011 of $162.7 million.”

Chief executive Bernie Brookes said the current retail conditions were unprecedented. “The tough trading conditions experienced from November 2010, exacerbated by the floods in Queensland and Victoria, continued into the second half,” Brookes said.

“The consumer continues to be reluctant to spend in the face of a number of increased cost-of-living pressures, the imminent imposition of new taxes, uncertainty surrounding interest rates and an increased propensity to save.”

The company noted that economic conditions will dictate when consumer confidence returns.

Brookes said the company will continue to enhance its online offer, and that it will still work on bringing shopping capabilities to multiple channels, including mobile devices.