David Jones outpaces flat fashion market, lifts profit sharply

David Jones has proven a winner for South Africa’s Woolworths Holdings as it sharply lifted annual profit.

David Jones

David Jones, under the ownership of South Africa’s Woolworths Holdings, continues to outpace the otherwise flat fashion and apparel sector in Australia, after it boosted sales by 8.4 per cent for fiscal 2016. The result came as customers reacted positively to the transformation of the upmarket department store, which has included a greater emphasis on private label fashions.

The decision to buy David Jones in 2014 has also proven a winner for the South African-based retailer, with David Jones’ pre-tax profit in 2016 of just over $200 million more than one-third larger than the $149 million pre-tax profit posted by the department store in 2013, its final year before it was taken over.

It marks the strongest earnings by David Jones since 2011.

Meanwhile, the group’s revenue increased to $2.192 billion.

But David Jones hasn’t been immune to the turbulence blowing through the Australian fashion and apparel sector, as the late start to winter and sliding Australian dollar did crimp the department stores’ earnings growth.

Woolworths Holdings said that while it expected the Australian market to continue to be tough, as competition ratcheted up, it believed its mid-to-upper income customers were “resilient’’, while a planned foray into food retailing in Australia represented a fresh opportunity for further growth.

Releasing its latest full-year results in South Africa this afternoon, covering the year ended June 28, 2016, Woolworths Holdings said that comparable sales for David Jones increased by 7 per cent.

However, gross profit margin declined by 1.7 per cent to 37.9 per cent at David Jones and was impacted by the late winter markdown, lower intake margin on Australian dollar weakness and inclusion of the clearance month of July in 2016.

David Jones’ full-year profit before tax was $168m, which increases to $202m taking into account profit earned by the other group segments from the David Jones channel.

“Transformation continues with private label products rolling out in phases, the online shopping channel gaining traction and with single view of customer across the business nearing completion,’’ Woolworths Holdings said.

“The rollout of our new merchandise systems are tracking to plan and progressing well.”

“The implementation of the premium food strategy in Australasia under the David Jones brand has also commenced, initially with food service (café and food to go) whilst fresh produce and prepared meal catalogues are built.”

In 2014, Woolworths Holdings paid $2.2 billion for the David Jones retail chain. It also paid retail mogul Solomon Lew more than $200m for his minority stake in Country Road. It vowed to turn around the department store and revitalise its offering to Australian shoopers.

At Country Road Group, which includes brands Country Road, Trenery, Witchery and Mimco, sales, including sales in South Africa, increased by 5.5 per cent in Australian dollar terms as a result of increased space of 6.3 per cent, 2.7 per cent of which comprised new David Jones concession space.

Despite the new space, range issues and the unseasonal warm winter impacted trading performance and comparable store sales were 3.9 per cent lower than the prior year.

Higher markdowns and promotions resulted in gross profit margin declining by 1.5 per cent to 59.4 per cent, while store costs increased by 8.5 per cent due to the increase in trading space. Adjusted profit before tax for Country Road Group reduced by 13.6 per cent to $95 million.