Myer Holdings (MYR) – Margins narrow

Myer Holdings operates department stores in Australia and New Zealand and also has an online division. The company was founded in 1900 and is based in Docklands, Australia.‍

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Myer Holdings posted first-half FY26 underlying net profit short of market expectations as the online and department store retailer disappointed on sales and gross margins. Headline total sales growth of 24.5% included the contribution from the Apparel Brands business acquired from Premier Investments (PMV), but total sales growth on a pro forma basis was 2.1%. Sales growth in the first seven weeks of the second half came in at 1.7%, slower than the 2.1% growth booked in the first half thanks to a fall in Apparel Brands sales of 0.4% while sales from the Myer retail business rose 2.2%. Management seems mildly optimistic about the remainder of the second half, but we prefer to stick with the first seven weeks result given an uncertain economic environment.

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The gross margin shrank 76 basis points (bp) to 38.9% on a pro forma basis, some 70bp short of consensus estimates, driven by a skew of sales to segments such as homewares and concessions that generate narrower margins and marketing expenses as it cleared legacy Myer Exclusive Brands (MEB) ahead of relaunching that business. The vast majority of MEB clearances have been now finished, which should reduce promotional costs and drive an improvement in gross margin to 40.5% in the second half.

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Meanwhile, first-half costs of doing business (CODB) as a proportion of sales matched market expectations at 27.9%, and Myer maintained guidance for full-year CODB of 29%. Post the result, we have raised our EPS estimates by 6.4%, 0.8% and 3.4% for FY26, FY27 and FY28, respectively. Myer is executing its strategy well, but the retailer faces a difficult task in growing LFL sales on a sustainable basis, the department-store industry faces structural challenges in the modern-day retail environment, and the economic backdrop of elevated inflation and rising interest rates adds to the uncertainty. This view, along with a change of analyst coverage, leads Ord Minnett to cut its target price to $0.32 from $0.67.