Deutsche Bank has downgraded Myer to a Sell recommendation on the department store’s earnings outlook.
Myer shares tanked last week after the retailer announced its half year results showing a 23% fall in profit.
The company now expects profit for the full year to be between $75 million and $80 million, below the $98.5 million forecast by the market.
Deutsche Bank says the group needs to make substantial investments to have any chance of addressing the perennial issue of earnings from stagnant sales and a growing cost base.
The investment bank downgraded its share price target to $1.10 from $1.60. Myer is currently trading at $1.35, down from $1.53 before the latest results.
Here’s Deutsche Bank’s forecasts for Myer’s profitability:
Deutsche Bank also reduced its earnings estimates for the full financial year, assuming weaker sales growth. The 2015 full year net profit is now forecast at between $75 million and $80 million.
Myer reported challenging trading conditions during the second quarter of the financial year, improving in late December.
“However, January sales were strong, posting growth of 3.9%,” says Deutsche Bank. “Commentary from both David Jones as well as other industry players also seems to suggest that the positive momentum in late December continued into January.”
Deutsche Bank says this is also confirmed by Australian Bureau of Statistics official retail numbers which reflects the positive performance of department store sales growth of 1.4% in January.
However, this does not seem to have been sustained in February and March as competitive pressures saw sales fall below Myer’s expectations.