Australia's Myer cuts profit guidance, writes off Topshop, shares slump

Top Australian department store operator Myer Holdings Ltd gave a profit warning on Thursday after a mid-year sale fizzed and efforts to revive the local arm of British fashion chain Topshop failed, sending its shares to a record low.

The operator of 67 department stores said a yearly stocktake sale in June and July was an "important period of profit generation" but weak trading conditions had persisted, meaning underlying net profit would be as low as A$66 million (39.94 million pounds), compared with its A$69 million guidance in May.

It added that it wrote off its one-fifth stake in the Australian franchisee of Topshop after no agreement was reached on a rescue plan with the franchise owner, Philip Green's Arcadia Group Ltd.

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Myer shares were down 11 percent at 72.5 Australian cents by 0411 GMT, their lowest intraday level since listing, while the broader market was up 0.5 percent. The stock has never traded over the A$4.10 a group of private equity firms sold it for in 2009.

The profit downgrade reflects a perfect storm for Australian department stores: they are fighting fierce competition from global brick-and-mortar "fast fashion" groups such as H & M Hennes & Mauritz and also online, while wage stagnation and higher energy prices keep shoppers at home.

The heightened pressures add to the fickleless of the department store business model which in Australia has traditionally relied on demand spikes at Christmas and mid-year winter sales, a pattern which retail data suggests is waning.

"This business requires buoyant, healthy, strong retail conditions to achieve...targets, and it's just not going to get there," said David Walker, senior equities analyst at fund manager Clime Asset Management.
Walker listened to an analyst call to decide whether to buy Myer shares but "we just don't think this is a robust enough business in a weak retail environment".

A week earlier, South Africa's Woolworths Holdings warned annual profit could fall by up to 10 percent because of tough trading conditions at its Australian subsidiary, David Jones, a Myer rival department store chain.

Myer added that its deputy chief executive and chief merchandise officer Daniel Bracken has left the company after two and a half years, but did not provide further detail.