Australia's Myer reports lower first-half net income

Myer Holdings Ltd. s first-half earnings fell 74 percent on costs from the November initial public offering of Australia s biggest department-store chain.

Net income dropped to A$21.3 million ($19.5 million) in the six months ended Jan. 23 from A$83.2 million a year earlier, Melbourne-based Myer said in a statement. Excluding one-time items, profit for the half rose 38 percent to A$115 million.

Myer cut its annual revenue forecast while affirming earnings as growing sales of clothing labels exclusive to its outlets bolster profit margins and limit the impact of withdrawn government stimulus measures. The result is the first since the IPO that raised A$2.1 billion, Australia s biggest of 2009, when buyout companies TPG Inc. and Blum Capital sold their stakes in the chain.

Lower sales guidance is pragmatic given the challenges in cycling fiscal stimulus, Craig Woolford, an analyst at Citigroup Inc., said in a note to clients today. We see value at current levels given the potential for further margin expansion and new store openings over the next three years, said Woolford, recommends buying the retailer s stock.

Myer fell 0.9 percent to A$3.44 at the close of trading in Sydney after earlier rising as much as 2 percent. The stock has dropped 5.5 percent this year and has yet to trade above the A$4.10 a share that investors paid in the IPO.

Full-year sales growth will be between zero and 2 percent, the company said today, slower than its November forecast for a 3 percent increase to A$3.36 billion. Sales for the first half rose 2 percent to A$1.8 billion.

Earnings before interest and tax for the half rose 12 percent to A$181 million with the company today affirming its prospectus forecast for annual Ebit of A$261 million.

The first half profit margin, which measures Ebit as a proportion of sales, widened to 10.05 percent from 9.15 percent a year earlier on sales of more profitable clothes and lower operating costs. Second-ranked chain David Jones Ltd., which announces earnings next week, has a margin of 9.3 percent.

Myer is planning to open 15 new stores, including two this calendar year, as it targets a national network or 80 outlets by 2014.

We are looking forward to the commencement of our store opening program and the launch of our new International standard flagship store in Melbourne. Chief Executive Officer Bernie Brookes said in the statement.