David Jones investment puts dent in profits

By Aimee Chanthadavong

With plenty going on in preparation for a more stable future as part of its Future Strategic Direction Plan, David Jones has reported a profit decline for the 2013 financial year.

Profit after tax (PAT) for the 52 weeks to 27 July 2013 was $95.2 million, compared to $101.1 million for the same period last year. This result includes a $9.1 million charge relating to the sale of electronics inventory to Dick Smith as part of the Retail Brand Management Agreement (RBMA) the company entered into with Dick Smith in August. Excluding this impact, PAT actually increased to $101.6 million.

David Jones CEO and managing director Paul Zahra said while retail conditions continue to remain challenging due to ongoing weak consumer sentiment and aggressive discounting, the company remains focused on the future.

“In this environment we are focusing on managing those parts of our business that we can control such as inventory, gross profit margins and costs,” he said. “We also remain focused on the continued roll-out of our Future Strategic Direction Plan.

“Our company has a strong balance sheet, low debt, strong cash flows and owns its Sydney and Melbourne CBD flagship store properties.

“All of these factors will ensure we are well placed to capitalise on any strengthening in consumer sentiment as it occurs. Nevertheless, we expect that over the next 12 months trading conditions will remain challenging, with consumer sentiment continuing to be subdued and ongoing competitive pressure.”

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The company also reported that earnings before interest and tax (EBIT) for the department store business were $99.5 million (excluding the impact of the Dick Smith transaction), a drop from $105 million in FY12. Similarly, total sales, excluding the impact of the Dick Smith transaction, saw a slight 1.2 per cent decline from the previous year to $1.845 million. Like-for-like sales were also down 1.8 per cent.

There were several reasons for these declines, including the unusually warmer winter, a decline in sales in the home categories, and a flagging electronics category which continued to be adversely impacted by deflation and aggressive discounting.

However, this was offset by strong sales in the fashion and beauty categories, which DJs plans to build on with a ‘Next Generation’ department store concept in its new stores, first piloted at the new David Jones store in Highpoint, Victoria. The Next Generation concept includes new features such as free in-store Wi-Fi, mobile device charging areas and “high tech omni-mirrors that allow customers to photograph and post images on Facebook, Instagram, Twitter and Pinterest”.

The department store also plans to increase its focus on full margin sales through new campaigns such as 'The United States of Accessories' and the 'Denim Seeks Soul Mate' campaigns while reducing the depth, breadth and duration of its discounting events.

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