Enlarged Myer Stumbles, But Remains Confident

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

The company is included in ASX300 and ALL-ORDS

While FY25 results for Myer revealed resilient sales, a step-up in costs was cause for concern though analysts generally believe management's strategy reset remains on track.

-Myer's FY25 result disappoints on costs, shares weaken
-Analysts posit it is still early in management’s multi-year transformation plan
-Step-up in CODB costs is structural, cautions Ord Minnett
-If all goes well, shareholders can expect significant step-up in dividends

By Mark Woodruff

Back in May this year, Executive Chair Olivia Wirth used retailer Myer’s ((MYR)) investor strategy day to draw a line under past promises.

Execution risk was high given the scale of work required, but the strategy was clear: simplify operations, accelerate digitisation, and leverage data and brand control to enhance margins and customer loyalty.

A pivotal building block was the January combination with Premier Investments’ ((PMV)) Apparel Brands, exchanged for -$864m in Myer shares. Those labels are now on myer.com.au, helping realise cross-shop, upsell and fulfilment advantages across an enlarged customer base.

The plan mapped a three-to-five-year rebuild: a refreshed Myer one loyalty ecosystem, a reboot of Myer Exclusive/Owned Brands, heavier omni-channel investment, and a full supply-chain modernisation.

This week’s disappointing FY25 results underline the scale of the task, though some analysts see positives in the early stages of Myer’s transformation and suggest the operational re-alignment remains on track.

Myer shares closed at 47 cents on September 24, down from around 64 cents prior to the release of FY25 results.

At the subsequent results presentation, management launched a ‘Value Creation’ program to help offset higher-than-expected cost pressures which, at this stage, are expected to continue into FY26.

FY25 net profit of $36.8m fell well short of consensus expectation, with no final dividend declared as elevated costs-of-doing-business (CODB) offset a rebound in second half like-for-like sales growth.

While early FY26 trading was encouraging, Morgan Stanley believes any uplift in sales trajectory is being overshadowed by the higher cost outlook. Management cautioned the cost of doing business (CODB) pressures had continued into FY26.

Sales for the first seven weeks of the new fiscal year rose 3.1%, with Myer Retail up 4.3% (consensus forecast 2.4% growth) and Apparel Brands down -1.3%.

Category performance was mixed, as highlighted by strength in Womenswear and Homewares.

Apart from the latter, Myer’s product range also spans fashion, beauty, toys, and more, served through its physical stores alongside a growing online platform.

Total sales growth was 0.5% for FY25 on a pro forma basis, with 1.7% growth in the second half, the first period as Myer Group, reflecting a six-month contribution from Apparel Brands.

The launch of the expanded “Myer Group” at the beginning of this year brought together 783 stores across Australia and New Zealand (the 56 Myer department stores plus the Just Jeans, Jay Jays, Portmans, Dotti, Jacqui E, Sass & Bide, Marcs, and David Lawrence chains) and over 17,000 team members.

While sales proved resilient, management noted profitability was impacted by soft macroeconomic conditions, reflected in subdued consumer demand, as well as increased promotional activity.

Initial stages for transformation

FY25 was a year of significant transformation and reset for Myer, Petra Capital comments, amidst a difficult macroeconomic backdrop and national distribution centre (NDC) disruptions.

Also, it remains early days, with the Myer One offering only extended to Apparel Brands in August. A full relaunch of the program is scheduled for October, in line with the original timeline.

Canaccord Genuity believes positive signals, including a stronger fourth quarter FY25 and expected first quarter FY26 revenue performances, clearer synergy timing, and meaningful long-term NDC benefits, have yet to be recognised or priced in by the market.

Morgan Stanley equally expects sales and gross profit margin will benefit from the relaunch of Myer Exclusive Brands in the second half of FY26.

The cost of doing business

A higher CODB (expressed as a percentage of sales) will dilute the net benefit, Morgan Stanley suggests, thereby pushing out the anticipated uplift in forecast earnings.

Higher costs reflect increased store wages, inflation-driven occupancy costs, investment in new finance systems, and additional support office staffing.

Ord Minnett estimates the step-up in CODB during FY26 will weigh down on the annual cost base by around -$15-20m, embedding permanently into the structure rather than being a short-term impact.

Management is targeting FY26 CODB of between 29-30%, below the 30.7% from the second half of FY25, but above the pro forma FY25 level of 28.9%.

It is Morgan Stanley’s assessment, the variance in cost guidance for FY26 of roughly $40m adds uncertainty to the FY26 earnings growth outlook, and likely contributed to the Myer share price sell-off post this week’s market update.

Additionally, the company’s NDC costs weighed on FY25 earnings to the tune of -$16m, slightly better than Petra Capital’s -$18m estimate.

This drag is expected to ease to zero in FY26, though a further -$32m, mostly capex, is required to achieve full operational efficiency.

A goodwill impairment of -$213m related to the Apparel Brands acquisition was also incurred in FY25.

An encouraged Petra Capital notes strategic initiatives are on track, with corresponding earnings benefits re-affirmed.

Recovery progressing

Morgan Stanley maintains the key drivers of margin recovery remain intact, citing four main benefits: delivery of merger synergies; the Myer Exclusive Brands relaunch; improved profitability in Specialty Brands; and property consolidation.

Meaningful progress is expected from the second half of FY26, aligned with the timing of Myer Exclusive Brands consolidation, NDC remediation, and the store refit program between the fourth quarter of FY26 and the first quarter of FY27.

By FY28, management expects the NDC to deliver $20m in annual benefits, with $5m of this contributing to the reaffirmed $30m synergy target from the integration of Apparel Brands.

Outlook

Ord Minnett sees value in Myer shares though highlights significant risks from integrating Apparel Brands and the challenge of sustaining like-for-like sales growth. On this basis, this broker has lowered its target to 67 cents from 86 cents and downgraded to Hold from Accumulate.

Morgan Stanley maintains its Overweight (Buy equivalent) rating in view of the strategy reset and turnaround opportunity from the integration of Apparel Brands, along with loyalty and efficiency improvements. While it’s felt there’s potential to meaningfully improve earnings margins, the analysts’ target falls to 77c from $1.00 post this week’s disappointment.

Petra Capital has lowered its target price to 75c from 90c, yet this broker maintains a Buy rating, noting Myer is advancing its strategic initiatives, which are expected to deliver earnings benefits in FY26-28.

Ord Minnett acknowledges value in Myer but flags material risks from the Apparel Brands integration and the challenge of sustaining like-for-like sales growth. The broker’s target price falls to 67c from 86c and the rating is downgraded to Hold from Accumulate (midway between Buy and Hold).

Despite a fresh 79 cent target, down from $1.05, Buy-rated Canaccord Genuity expects delivery on cost synergies and resolution of distribution centre issues will help underpin a significantly larger operating profit by FY27-28.

Only two out of the eight daily monitored stockbrokers cover Myer and on their forecasts shareholders should expect to see a significant jump in dividends for FY27, currently estimated at 4.1c per share versus an expected 2.3c in FY26.

The implication is the yield on the shares trading around 46c today is expected to jump from 5% (FY26) to 8.9% (FY27).

In terms of earnings per share, Myer is not expected to beat FY24’s 5.2c until FY27.

For more details: see Stock Analysis.

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