Myer shares continue to fall PT1M39S http://www.brisbanetimes.com.au/action/externalEmbeddedPlayer?id=d-2tlvx 620 349 September 12, 2013 Investors have punished Myer shares this morning after the department store owner yesterday unveiled a near 9 per cent fall in full-year profit, missing market expectations, as well as providing a dour outlook for 2014. Some analysts have also been quick to take the company down a peg following the release of its earnings result, reducing their profit forecasts for fiscal 2014 and lowering Myer's valuation. A standout complaint came from Citi analyst Craig Woolford who after going through the entrails of the result said Myer needed to increase its staffing levels at its department stores by as much as 10 per cent to generate a sales boost. Shares in Myer were down 11 cents, or 4 per cent, to $2.66 this morning but hit an earlier low of $2.64. On Thursday Myer shares fell more than 5 per cent when the company said its full-year profit dipped 8.7 per cent to $127 million - its third successive annual profit slide. But shareholders were also disappointed by the outlook provided by Myer boss Bernie Brookes who warned weaker sales for the next six months and another profit fall for 2014. Profit growth wouldn't return until 2015, he said. This morning broker reports meted out their punishment on the stock. UBS analyst Ben Gilbert kept his rating on Myer as 'neutral' but did cut his 2013-14 pre-tax earnings target by 20 per cent and earnings per share target by 18 per cent. "While on a headline basis Myer looks attractive into 2014-15 and offers significant leverage to an improving consumer backdrop we believe a significant level of uncertainty remains, particularly around the projected uptick in fiscal 2015 earnings," Mr Gilbert said. He cut his valuation on the stock to $2.63 from $2.95. Mr Woolford, who downgraded Myer to a 'sell" this morning, noted Myer's profitability continues to decline. In 2012-13, cost rose faster than sales and the same outcome is likely again in 2014. He forecasts earnings per share to fall 5 per cent this financial year. In our view, staffing levels need to rise significantly to meaningfully improve sales. Sales are 5 per cent lower than five years ago, even though there are more stores. We forecast 2013-14 sales growth of 1.5 per cent. Mr Woolford said the real challenge for Myer was growing sales faster than costs. It's not easy, but entirely plausible. In our view, staffing needs to rise by 10 per cent as a precursor to better sales growth. He said rising costs were a "fact of life" with Myer's cost of doing business likely to rise 4 per cent to 5 per cent in 2014. Online and new stores will help, but refurbishment disruptions and closures hurt. The company has signalled a focus on driving sales per square metre. If there are early signs of success, we would become more positive on the stock. Citi has downgraded the stock and set a target price of $2.40 for Myer. We downgrade Myer to 'sell' given the recent run in the share price looks unjustified based on its earnings trajectory. The only saving grace we see for Myer is that the stock has a better price to earnings relative valuation than other large ASX-listed discretionary retailers. Credit Suisse analyst Grant Saligari has cut his target share price for Myer to $3.00 per share from $3.10 and has downgraded the company's 2014 earnings due to an assumed slower than anticipated pickup in sales revenue. However, he did hold out some optimism for the future despite sales revenue and profit from new stores being offset by the negative affect of refurbishment activity on three major Myer stores. Excluding that effect, the growth rate in like-for-like sales is likely to improve through the course of fiscal 2014 due to acceleration in online sales and a generally improving retail environment. Growth in operating cost is moderating. Cash performance remains strong and Myer has a modest valuation. Mr Saligari has maintained his 'outperform' rating on the stock.