JB Hi Fi & Harvey Norman Downgraded As DJs Profits Tumble

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Both Harvey Norman and JB Hi Fi have been downgraded by analysts with both organisations tipped to announce revenue falls for the June Quarter.

Both Harvey Norman and JB Hi Fi have been downgraded by analysts with both organisations tipped to announce revenue falls for the June Quarter.

Late yesterday department store chain David Jones slashed profit forecasts after reporting that sales collapsed during the winter clearance period. They said profits will fall by as much as 20 per cent.

The warning came just two months after the company told the ASX that profit was set to grow by around 5 per cent in the second half, providing there was no further deterioration in trading conditions. But Mr Zahra said sales had deteriorated significantly during the “all-important clearance period in June and ‘clearance clear-out’ in July”.

David Jones chief executive Paul Zahra said that the deterioration in trading conditions in the last two months had been unprecedented.

The company has forecast a decline of up to 20 per cent in profit for the first half of the new financial year.

Mr Zahra said DJs would continue investing in its online business and a new checkout point-of-sale system, as well as its financial services business and store refurbishments.

Last week Goldman Sachs downgraded its expectations for the June quarter discretionary spending.

The investment bank has reduced forecast earnings on average by 2-4 per cent for Myer, David Jones , JB Hi-Fi and Harvey Norman.

Scott Phillips writing for Fairfax Media said Gerry Harvey’s retail empire has been tarnished recently with margin pressure on TVs in Australia and ongoing losses in Ireland. As a result, the price is down one-third on the 12-month high and almost two-thirds on its all-time high of $7.25.

Far from being a one-trick plasma television pony, Harvey Norman operates in a number of white and brown-goods categories, as well as having a market leading position in bedding and furniture. On top of that, Harvey Norman owns over $1.8 billion of property (as at the end of last year) and is conservatively financed.

The threat posed by Australian discount retailers and overseas websites shouldn’t be ignored and Harvey Norman has been late to the online party. That said, it’s a brave person who bets against Gerry Harvey or the Harvey Norman franchise system – one of the company’s underappreciated strengths.

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