By James Wells

SYDNEY: Narta member David Jones has reported a strong overall performance for the first half of the financial year ending 31 December, 2005, but has confirmed flat sales for the third quarter which will end in just over a week.

"We have implemented a strong business model that enables us to manage the economic cycle and to continue delivering strong financial results and returns for our shareholders, regardless of slowdowns in consumer spending,” said David Jones chief executive officer Mark McInnes.

Like other retailers, David Jones has been experiencing slow sales since Christmas.

“To date third quarter sales have been flat,” McInnes said.

According to the first half results released yesterday, David Jones’ core department store business contributed an 18.6 per cent increase in profit to $62.1 million, up from $52.4 million a year earlier. The David Jones credit card business reported a 7.9 per cent increase in profit to $16.3 million compared to the corresponding period a year earlier.

McInnes said he was pleased with the gross profit margin of the business for the first half which was 39 per cent.

“This was a strong result given the increasingly competitive environment in the first half of this financial year and the subdued consumer spending environment. The company continued its track record of tight stock management, with aged stock inventory levels for the group being maintained below five per cent of total inventory,” McInnes said.

Commenting on the next two financial years, McInnes quoted Access Economics who is forecasting a mild strengthening of consumer spending in the 12 months to 30 June, 2007 and a return to strong consumer spending in the 12 months ending 30 June, 2008.

Over the next two years, David Jones will refurbish the Bourke Street ground floor by October 2007, complete over 400 new brand installations and open the Queens Plaza store in Brisbane. A refurbishment to the first floor of the Elizabeth Street store in Sydney is due to be completed next month.

"As we move into the second half of FY06 and into FY07 and FY08, our business model’s revenue generating initiatives such as our refurbishment program and our proven brand strategy will enable us to capitalise on the expected strengthening of consumer sentiment throughout this period," McInnes said. 

Looking at the period from 2008 to 2012, McInnes claims the retailer has several growth opportunities including up to 12 new stores which may be acquired from the new owner of Myer – Newbridge Capital.

“We have previously stated that we would be interested in acquiring 5-12 Myer stores from the successful bidder for this business. Given this has not eventuated to date, we intend to open a number of new stores in strategic, high-value locations, which have the right demographic profile and fit with the David Jones business. Negotiations with landlords for this purpose have already commenced and are progressing well,” McInnes said.

David Jones will also need to renegotiate key terms of leases due for renewal including Bankstown in Sydney this year, Eastgardens in Sydney in 2007 and the Hunter Street store in Newcastle in 2008.

Commenting on the acquisition of the Myer department store business by the Newbridge Private Equity Consortium, McInnes said the move will assist David Jones’ retailing format.

"We believe that the sale of the Myer department store chain will continue the recent reinvigoration of the department store sector in Australia and its prominence and relevance to consumers. In addition, we believe that the independent ownership of Myer by a private equity group will bring a focus to return on investment in the department store sector and accordingly, there will be significant opportunities for our company to capitalize on this industry restructure," McInnes said.

David Jones has recently announced a restructure within its buying department which has not changed the structure or responsibilities of the business, but only the personnel.

David Jones’ former buying manager – home entertainment and appliances, Warwick Kerr has recently moved to a new special projects role within the company to improve efficiencies within merchandise.

Replcing Kerr is Gary Neville, who has been promoted to general manager from buying manager, .

Tevfik Tevfik has been appointed to look after Neville’s former responsibilities as well as small appliances.