Coles sales down, DJs won’t bid

By Sarah Falson

SYDNEY: The Coles Group has officially invited expressions of interest from parties wishing to purchase all or part of its businesses, including Target and Officeworks, but former department store-rival David Jones said it won’t be bidding.

In a financial report that revealed Coles Group’s sales growth at its lowest in seven years, the Group’s net profit after tax was up just 3.5 per cent to $501 million in the half-year ending 28 January 2007, compared with a 3.88 per cent increase in the corresponding previous period and a 4.15 per cent increase in the corresponding previous period before that.

David Jones chief executive officer, Mark McInnes, said the Coles Group’s businesses are attractive, however they are not aligned with David Jones’s retail strategy and therefore the high-end retailer won’t bid.

“Kmart, Target, Officeworks – they’re all terrific assets. [But] none of those assets or competency skills are particularly aligned to our type of company or our type of business, so it’s hard to see us playing a role in the process,” McInnes told Sky News.

A financial analyst this month told the media that the David Jones department store, which is a member of the Narta buying group, no longer suffers rivalry from the Coles Group since the latter sold off its Myer department store business to Texas Pacific Group last year for $1.4 billion.

“They have been able to extract better selling prices because of the lack of competition from Myer,” Tony Pearce of Australian equities at Legg Mason Asset Management in Melbourne said of David Jones.

The Myer sale was the beginning of a process to simplify the Group, which aims to become one integrated retail business meeting the everyday shopping needs of Australians.

“We are very pleased with the level of interest which has been expressed by parties wishing to explore buying the business as a whole, acquiring Target and/or Officeworks, or buying the whole of or a significant stake in the ‘everyday needs’ business,” said Coles Group chairman, Rick Allert.

"The board is also pursuing the potential demerger of Target and Officeworks, and will assess the value of those businesses as separate public companies as part of its evaluation.

"In addition, the board will be considering the potential sale of a significant stake in the ‘everyday needs’ business, which could result in the business continuing to be listed and shareholders being able to participate in the benefits brought to the business by a new investor.

"In short, we intend to leave no stone unturned in looking at all options that could be in the interests of our shareholders.”

The Group confirmed it remains on track to deliver $787 million for the full year, but with a “lower than anticipated contribution from supermarkets,” following a process to re-brand Bi-Lo stores to Coles. 

Profit for the financial year 2008 is now expected to be 10 per cent lower than the previous guidance of $1,066 million, but still 20 per cent higher than profit anticipated this financial year.

Meanwhile, David Jones, which posted a 30 per cent hike in earnings for the first half 2007, has announced that if Myer’s new owners have squeezed better deals out of its retail suppliers, then David Jones will make sure it gets those same deals.

"Over the next three to four months we intend to make sure that any of the favourable terms that suppliers might give to Myer actually come to David Jones at the same level and at the same pace and the same amount," he said.

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