(Corrects share milestone in third bullet and sixth par from six-month high to four-month high)
* Myer swings to half-year profit amid turnaround
* Sales continue to fall, dropping 2.8 pct
* Shares hit four-month high
By Tom Westbrook
SYDNEY, March 6 (Reuters) - Embattled Australian department store operator Myer Holdings Ltd returned to profitability in the first half as a turnaround strategy focused on cutting floorspace and shedding low-margin brands gained traction, lifting its shares sharply.
But a slide in sales at the country’s biggest department store chain, where they have been falling for two-and-a-half years, and a forecast for a bumpy second half are further signs of a softening broader economy.
Australia’s retailers have been hammered as a downturn in property prices has consumers saving more and spending less, pushing the country’s fourth-quarter GDP below forecasts and prompting the central bank to weigh an interest rate cut.
Investors however welcomed Myer’s results, pointing to the slower sales fall than the previous quarter and healthy growth in margins.
“To me it’s a lot of positive steps in the right direction in an environment which is difficult,” said Geoff Wilson, chief investment officer at Wilson Asset Management, Myer’s fourth-largest shareholder.
Myer shares jumped as much as 20 percent in early trade to their highest since October, while the broader market rose 0.2 percent.
The 119-year-old firm is emblematic in Australia of the struggle of traditional department stores to adapt to the rise of online shopping and the arrival of offshore competitors like H & M Hennes & Mauritz AB.
Its return to profit followed a run of profit warnings, impairment charges, executive departures and a plunging share price.
The company posted net profit of A$38.4 million ($27.2 million) for the six months to Jan. 26, compared with a loss of A$476.2 million for the same period a year earlier.
“We feel this result is a small step in the right direction, but we are highly conscious that the heavy lifting is still ahead of us,” Myer Chief Financial Officer Nigel Chadwick told investors on a conference call.
John King, who began as chief executive in June, said the company would be shrinking the size of its stores, discounting less and switching to higher-margin brands in the second half, which would disrupt sales.
Total sales fell 2.8 percent during the period to A$1.67 billion and the Melbourne-based company declared no interim dividend after suspending it last year.
The result follows a 28.8 percent slide in half-year operating profit at its biggest rival, David Jones, a division of South Africa’s Woolworths Holdings Ltd.
Fallout from Australia’s real-estate downturn has hit earnings across the economy, crimping sales at grocers, building suppliers, advertisers, mechanics and developers.
$1 = 1.4116 Australian dollars Reporting by Tom Westbrook in SYDNEY. Additional reporting by Shanima A and Aditya Soni in Bengaluru; Editing by Phil Berlowitz and Stephen Coates