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Feb 7, 2011
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Myer latest Australia retailer to cut forecast

Feb 7, 2011

MELBOURNE, Feb 7 (Reuters) - Myer Holdings , Australia's largest department store, joined a growing list of local retailers in warning profits will fall well below forecast after baffling shopper trends in recent months, knocking its shares down 12 percent.


Myer shares plunged to a 7-month low after it said 2011 earnings could fall as much as 5 percent after a shock drop in sales in January, usually one of Myer's biggest trading periods.

Just a few months ago, Myer said full-year earnings were likely to rise as much as 10 percent.

"It has been a bit of a surprise," said Paul Xiradis, managing director of Ausbil Dexia, the biggest shareholder in Myer rival David Jones and a top 10 Myer shareholder. "The impact of the margin contraction was larger than one would have expected."

Shares in Australian retailers have fallen since the central bank surprised many by hiking interest rates in November to a two-year high of 4.75 percent, and banks followed with even larger rises to mortgage rates. Cautious consumers reacted by spending less and saving more, sparking price discounting by retailers ahead of the key Christmas shopping season.

Myer said the drop in spending during its biggest annual sale in January had been significant, rapid and unexpected, while the November rate hike had an immediate and noticeable impact on sales in the 5-6 weeks following.

"It's pretty hard to get a read on the consumer at the moment," said Michael Turner, fixed income strategist at RBC. "There doesn't seem to be much response to discounting."

Data on Monday showed Australian retail sales rose by a surprisingly modest 0.2 percent in December as consumers stayed cautious, while inflation-adjusted sales for the fourth quarter dipped 0.3 percent in a blow to economic growth.

But while discounters are struggling, car sales hit their second highest level in 2010 and electronics sales held up. Electronic retailer JB Hi-Fi said on Monday it is on track to increase net profit 13-17 percent this year as it opens more stores.


Myer expected first half net profit after tax in the range of A$106 million ($107.5 million) to A$109 million. In the full year, it forecast net profit would fall as much as 5 percent from the A$169 million earned in 2010, to as little as A$160.6 million.

Myer said total sales for the six months ended Jan. 29 fell 3.5 percent, while same-store sales fell 5.2 percent.

Two weeks ago, top supermarket chain Woolworths , which also owns discounter Big W and electronics chain Dick Smith, cut its profit growth forecast by as much as half and predicted "a less confident consumer who is spending less."

In December, The Reject Shop lowered its profit guidance by around a fifth, citing a "completely unexpected" fall in sales and customer visits.

In contrast, U.S. January sales at major retailers beat analyst expectations even during snowstorms and some retailers such as Limited Brands Inc and Gap Inc raised their profit estimates for the holiday quarter.

"Trading conditions have deteriorated and we now expect the challenging retail environment to continue into the second half," Myer Chief Executive Bernie Brookes said on Monday.

"We, like other discretionary retailers, have observed a consumer that is more cautious to spend and has an increasing tendency to save," Brookes said.

Myer said increased costs, a new tax to pay for damage from severe flooding, and higher food prices after Australia's sugar, banana and other industries were struck by natural disasters would continue to limit sales until December.

Myer shares were down 11.5 percent at A$3.32 at 0250 GMT in a flat broader market .

David Jones shares fell 4 percent to A$4.54, while Harvey Norman , which has also seen a fall in sales, was down 3 percent to A$2.95.

(Editing by Ed Davies and Dhara Ranasinghe)

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