MELBOURNE (Reuters) - Myer Holdings Ltd (MYR.AX), Australia's largest department store chain, reported a smaller-than-expected 3.3 percent drop in second-half net profit, and said improving profit margins in the year ahead would offset upward pressure on costs.
Myer did not provide sales or profit guidance, saying the outlook was uncertain due to a continued tough retailing environment and subdued consumer confidence. Shares in Myer initially rose more than 2 percent on Thursday before giving up those gains and trading down 3.5 percent at A$1.78.
A strong Australian dollar is luring shoppers to chase online bargains from overseas rivals, while relatively high interest rates and falling home and share values mean some are simply spending less.
Department store sales slumped more than 10 percent in July, the biggest fall in seven years, and latest data show that one in 10 bankruptcies is in the retail trade.
Myer said same-store sales in the fourth quarter to July 28 nudged up 0.3 percent, matching analysts' forecasts and recovering from falls in previous quarters as it benefited from government handouts and trimmed its discounting.
"A significant reduction in our overall markdowns was achieved, benefiting the gross profit result," CEO Bernie Brookes said. "While there was price deflation during the year associated with being more globally competitive, this was offset by the success of our markdown reduction program."
Australia's economy, helped by a once-in-a-century mining boom, has withstood the global slowdown better than most, but its strong currency is encouraging shoppers wielding tablets and smartphones to hunt down bargains overseas. Australian retailers are having to offer discounts to keep up.
Even as the economy grew 3.7 percent in the last quarter from a year earlier and unemployment hovers near just 5 percent - strong by developed country standards - consumers remain in a funk over Europe's debt crisis and slower growth in the United States and China.
The Reserve Bank of Australia (RBA) held interest rates at 3.5 percent this month, but markets are pricing in a rate cut as soon as October. Easings in May and June, however, were not fully passed on by banks to those with loans, and did little to boost retailers' takings.
"It will take a longer period of global financial stability to calm the jangled nerves of Aussie shoppers," said Savanth Sebastian, economist at CommSec.
"People are more inclined to save their money rather than spend it at discretionary retailers ... and you've got the structural shift towards online," noted Simon Bonouvrie, portfolio manager at Platypus Asset Management.
Since early 2009, sales volumes at department stores have declined by around 6 percent, RBA Deputy Governor Philip Lowe said, in part as online sales make pricing more transparent.
"Many Australians have worked out that prices charged by domestic retailers for certain goods are higher than those charged by overseas online retailers. This is causing a rethink of business models, and retailers are having to make changes to the way they run their businesses," Lowe has said.
Myer's net profit fell 3.3 percent to A$52 million in the second half before one-offs from A$53.8 million a year earlier, according to calculations by Reuters from reported full-year figures. That beat forecasts for a 5.6 percent fall.
Full-year earnings fell 14.3 percent to A$139.3 million. The company had flagged a fall of up to 15 percent.
Myer and its closest rival David Jones Ltd DJS.AX are part of a global trend that has seen department stores particularly hard hit. British retailer Marks & Spencer (MKS.L) slashed its sales growth forecast earlier this year and invested less in selling space due to the growing popularity of online shopping. Sears Canada Inc SCC.TO last month reported a wider loss as sales dropped.
Retailers dominate the 10 most heavily shorted stocks on the Australian bourse, and data from independent research firm Zenith Investment Partners shows 8 of the top 10 short interest stocks over the past year are consumer discretionary stocks.
Myer is among the cheapest in about 60 stocks in the global multi-line retail sector on a forward price to earnings multiple, and ranks highest for dividend yield, at about 11 percent.
Myer shares, valued at just over US$1.1 billion, hit a life low of A$1.54 in late-June.
David Jones said its same-store sales dropped 1.3 percent in the fourth quarter, and has warned that second-half earnings could fall by up to 40 percent as it invests in a costly overhaul.
Before the results on Thursday, analysts were predicting Myer's net profit fall would 5.9 percent in the current fiscal year to A$131.1 million.
($1 = 0.9587 Australian dollars)
Reporting by Miranda Maxwell in MELBOURNE and Wayne Cole in SYDNEY, with additional reporting by Anshuman Daga in SINGAPORE, Reshma Apte in BANGALORE and Victoria Thieberger in MELBOURNE; Editing by Ian Geoghegan