CONFIRMED: David Jones 20% Profit Slump, SOS Plan Revealed

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David Jones’ first half profit slumped almost 20%. There is also speculation the company is to stop selling TVs, instead concentrating on selling small appliances, accessories, Apple products and devices that take up less floor space and delver higher margin than their current offering.

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DJs’ dismal $85 million net profit landslide for the six months ended 28 January 2012 (1H12) was in line with analyst expectations as the retailer sinks further after a poor sales period which included the busy Christmas period.

This net profit after tax figure represents a decrease of 19.6% on same last year’s $105.7m figure, the luxury retailer confirmed, after it ceased trading of shares earlier this week.

Total sales declined 6.7% in the half. The retailer also reported an 18.1% drop in earnings before interest & tax  to $125.8 m.

David Jones revealed its future strategic direction and three point plan following yesterday’s high level board of directors meeting, which prompted the stock trading cessation earlier this week, blamed on media speculation.

These new strategies will impact on total
costs and “together with the expected continuing challenging trading conditions and the cost of clearing excess inventory” a decline in full year profit of 35-40%, is forecast.

DJ management said it recognises that it faces a number of serious challenges including “structural, [current] macro economic headwinds and challenging Australian consumer credit markets,” as well as the growth of online rivals.

Online price competition was putting “pressure on traditional bricks and mortar retailers to differentiate themselves from online retailers by enhancing their customers’ in-store experiences and improving customer service,” DJs noted in a statement today.

The luxury retailer is engaging in a major drive to “harmonise” its cost prices with suppliers, as it seeks to lower its consumer prices and noted suppliers including Yves Saint Laurent, Fossil and DNKY have decreased their Australian cost prices, meaning luxury goods may be coming down in price here very soon.

Since the launch of the David Jones’ American Express card in September 2008, growth in the consumer credit card market has deteriorated, the company said, with yearly average spend per account dropping a phenomenal 89%.

DJs partnership with American Express, which was to boost earnings has failed to do so, the company admitted, and “expects the earnings contribution from its financial services business to broadly halve” when the deal ends in FY14.

However, despite the litany of woes, the retailer believes it is still in the game, declared David Jones CEO Paul Zahra.

“Whilst we acknowledge that our transformation into an OCR will taketime, given online retailing in Australia in 2011 accounted for 4.9%v of total retail sales we are confident we can move at the right pace to capitalise on this opportunity,” he said.

 

And Zahra also cited the success of international department stores such as Nordstrom in US and John Lewis in UK, who transformed into omni or multi channel retail businesses, which “demonstrates that there is great potential for well managed Omni Channel department store that build on their existing network of stores.”

A new David Jones Webstore to be open later this year as well as transactional mobile web-store, apps and a  “social commerce store” were some of the e-strategies, revealed today.

 It will also open six new stores in QLD, Vic and WA which will increase the Company’s store foot print to 42 nationally.

These new additions are expected to add $30 million to earnings when open.

DJs’ cost of doing business also rose 20 basis points to 27.8% and its earnings to sales ratio decreased by 180 basis points (bp) to 12.4%, which was “credible” result given the sales slump, it said.

And like rival Myer, David Jones said it has continued to invest in additional floor staff to improve its service levels and is “making progress” in implementing 27 cost cutting projects rolled out in 2011 and this year.

It has also made significant inroads in clearing excess inventory, with levels down 3.4% compared to same time last year.

The company’s cash flow was “solid” with operating cash flow of $150.8 million for the first half 2012 compared to $133.4 million in 1H11, as the inventory position improved and its balance sheet also remains “healthy.”

The Board of Directors has declared an interim dividend of 10.5 cents per ordinary share(cps) fully franked for the six months ended 28 January 2012.

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