David Jones books $712m impairment charge

Department store David Jones will book a $712.5m blow to its carrying value as retail woes savage sales and earnings.

Both David Jones and its rival Myer are feeling the impact of a retail downturn. Pic: /Bloomberg

Up-market department store David Jones will be forced to swallow a $712.5 million impairment charge to its carrying value as the nation’s retail downturn savages sales and earnings.

The big hit to David Jones’ balance sheet represents a large slice of the $2.2 billion South African retailer Woolworths Holdings paid for the retailer more than three years ago.

Earlier this month, when David Jones released its latest trading update, it warned it was assessing the carrying value of the business in light of difficult trading conditions.

Woolworths Holdings today revealed that, indeed, the business would be forced to book a hefty impairment charge, reflecting the poor performance in Australia.

“The reassessment of the carrying value of the David Jones assets has now been completed and a non-cash impairment charge of $712.5m will be recognised,” Woolworths Holdings said in a statement.

A Woolworths Holdings Limited spokesman added: “Today’s writedown reflects tough and unprecedented trading conditions, a cyclical downturn and structural changes that have impacted performance across the Australian retail sector.

“In addition this impairment has been exacerbated by delays and poor execution in certain of our key initiatives at David Jones.

“These conditions have not altered our focus on the transformation of David Jones and we are committed to the resolution of these execution issues and our ongoing investment plans for the business

“We have recently implemented new merchandising and customer relationship systems, and will continue to make significant investments in both our online and in-store offerings, including the renovation of the Elizabeth Street Flagship store (in Sydney) and the growing David Jones food business.

“These initiatives will prepare our business for the retail landscape of the future while building on the great heritage of our brand,” the spokesman said.

Last week David Jones revealed sales had continued to decline as it feels the pinch of Australia’s dour retail trading conditions.

The latest trading update showed sales at David Jones for the second half were down 3.3 per cent on a comparable basis.

Woolworths Holdings will release the half year results for David Jones on February 22.

The large impairment charge at David Jones comes as rival Myer is also suffering through a downturn in sales and earnings, with the department store issuing a shock profit downgrade in December.

Investors and analysts are now bracing for further bad news from retailers in the upcoming reporting season as the trading results for December and Christmas — which are tipped to be disappointing — are revealed.