Myer Holdings Ltd (ASX: MYR) managed to swing back to an annual profit on Thursday, which caused a 10% bump in the company’s share price. This represents their first period of profit growth in nine years, which is roughly the length of time it has been listed on the stock exchange. Nevertheless, even though the stock is one of the best performers of the day, it has still declined by a sobering 80% since their IPO. In the meantime, simply buying the US index would have more than tripled your money. This highlights the importance of being very careful of buying businesses just because of fully franked dividends.
Myer is trying to execute a turnaround strategy to address years of under-performance (Credit: ABC)
Myer had maintained a high dividend, attracting a large pool of investors who seek income at all costs. This was at the expense of in store upgrades, distribution agreements and floor staff. This leaves customers walking into stores that look ten years out of date, unable to find products they find attractive and left searching five minutes for a salesclerk on the off chance they do. While the yield has made the company look attractive for several years, the chronic under-investment in Myer’s core business made it a terrible investment since listing.
Amazon by contrast has been growing its market share, both in Australia and around the world. Unlike Myer, the company has a strong online presence and is at the cutting edge of automated warehousing and distribution. This helps the company establish a strong competitive moat, setting them up to beat competitors in a typically low margin business environment. While the company pays an insignificant dividend and trades on sky-high earnings multiple, few investors who bet $100k on the company ten years ago would complain about the $2m+ they have today.
While consumer confidence has been on the wane, we are constructive on the sector more broadly. Our view is that companies like Myer, who have been continually failing to execute and have historically been poorly managed, are the drivers of under performance. The retail landscape at present is one of growing competition, in which quality management is paramount and an ability to execute effectively in the online space can drive out-performance.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.